In. The Matter of The Gwelo (Matabeleland) Exploration and Development Company, Ltd (Williamson's Claim.)

• Jurisdiction: Ireland
• Judge: M. R.
• Judgment Date: 09 May 1900
• Date: 09 May 1901
• Court: Court of Appeal (Ireland)

IN. THE MATTER OF THE GWELO (MATABELELAND) EXPLORATION AND DEVELOPMENT CO., LIMITED. (WILLIAMSON'S CLAIM.)

Chancery Division

Appeal

Company — Mortgage of uncalled capital — Winding-up order — Sub-mortgage of mortgage fraudulent against contributories — Notice of winding-up, but no notice of fraud — Assignee of chose in action taking subject to equities.

Athenaeum Life Assurance Society v. Pooley 3 DeG. & J. 294.

Bickerton v. WalkerELR 31 Ch. D. 151.

Christie v. TauntonELR [1893] 2 Ch. 175.

Dickson v. Swansea Vale and Neath and Brecon Junction Railway CompanyELR L. R. 4 Q.B. 44.

Estates Company's CaseELR L. R. 3 Ch. 763.

Ex parte City BankELR L. R. 3 Ch. 758.

Ex parte Colborne and StrawbridgeELR L. R. 11 Eq. 478.

Ex parte MackensieELR L. R. 7 Eq. 240.

Fountaine v. The Carmarthen Railway CompanyELR L. R. 5 Eq. 316.

Hill v. CailovelENR 1 Ves. Sen. 122.

In re Agra and Masterman's BankELR L. R. 2 Ch. App. 391.

In re Blakeley Ordnance CompanyELR L. R.3 Ch. App. 154.

In re General Estates Co Ex parte City Bank Ibid. 758.

In re General Estates CompanyELR L. R. 3 Ch. 355.

In re Natal Investment CompanyELR L. R. 3 Ch. App. 355.

In re Romford Canal CoELR 24 Ch. D. 85.

Mahony v. East Holyford Mining CoELR L. R. 7 H. L. 869.

Masterman's BankELR L. R. 2 Ch. 391.

Natal Company CaseELR L. R. 3 Ch. 355.

Natal Company's CaseELR L. R. 3 Ch. 763.

Natal Investment CompanyELR L. R. 3 Ch. App. 355.

Re BurgesELR 15 Ch. D. 507.

Rice v. RiceENR 2 Drew. 73.

Romford Canal CompanyELR 24 Ch. D. 85.

Society v. PooleyENR 3 De G. & J. 294.

The Athenaeum Life Assurance Co. v. PooleyENR 3 De G. & J. 294.

The Natal Investment Co.ELR L. R. 3 Ch. 355.

Webb v. Commisioners of Herne BayELR L. R. 5 Q. B. 642.

Webb v. Herne Bay CommissionersELR L. R. 5 Q. B. 642.

38 THE IRISH REPORTS. [1901. M. R. 1900. Jan. 12, 13, 27. IN. THE MATTER OF THE GWELO (MATABELELAND) EXPLORATION AND DE VELOPMENT CO., LIMITED. (WILLIAMSON'S CLAIM.) Appeal. Company—Mortgage of uncalled capital—Winding-up order—Sub-mortgage of Maroh 14,15. mortgage fraudulent against contributories—Notice of winding-up, but no May 9. notice of fraud—Assignee of chose in action taking subject to equities. A mortgage of the uncalled capital of a company was given by the directors to the promoter's wife (whose name was used in the deed, at his request and for his convenience), to secure £3400, alleged to have been advanced for the company. The circumstances under which this mortgage was executed were such that the Court decided that it was as to £1350 (portion of the principal thereby secured) fraudulent as against the shareholders. The promoter's wife obtained an advance of £2750 by executing a sub-mortgage to W., who bad no notice of the fraud affecting the transaction, though he was aware that the company had been ordered to be wound up in hostile proceedings : Held (reversing the decision of the Master of the Rolls), that once the winding-up order was made all the then uncalled capital, so far as not validly otherwise appropriated, became devoted to the payment of the general creditors, and that W., claiming under the sub-mortgage with notice of the statutory appropriation of all the uncalled capital, could not get against the company a title higher than that of the mortgagee under whom he derived. ADJOURNED SUMMONS. This was an application on behalf of the liquidator of the comÂpany to rescind the ruling of the chief clerk, allowing the claim of Arthur Williamson, on foot of a sub-mortgage of the 26th April, 1898, from Mrs. J. F. Lupton to the claimant for £2750. By this deed Mrs. Lupton sub-mortgaged to the claimant a mortgage from the company to her, of the 9th October, 1895, for £3400. The company went into liquidation in December, 1897, and. Williamson's claim was challenged by the liquidator to the extent of £1350, on the ground that part of the consideration for the mortgage was for money paid by the promoters of the company before its formation, for which the company was not responsible, and that to that extent the mortgage was ultra mires of the comÂpany, and that the liquidator was not estopped by the acknowledg VOL. I.] CHANCERY DIVISION. ment in the mortgage that the £3400 was due to Mrs. Lupton, M. R. from disputing the validity of the mortgage to the extent of 1900. £1350, and that the sub-mortgagee had notice of the circum- /n re G Lo, &c., stances in which the mortgage was made. CO. - The summons was adjourned into Court, and witnesses were sores C WLLIAMLAIM. examined on behalf of the liquidator and on behalf of the claimant. The facts of the case and the arguments of counsel sufficiently appear from the judgment. Jefferson, for the liquidator. O'Connor, Q.C., and H. M. Byrne, for Williamson. [The following authorities were cited during the argument :— Athenceum Life Assurance Society v. Pooley (1) ; In re Natal InÂvestment Company (2) ; In re General Estates Co. ; Ex parte City Bank (3) ; Bickerton v. Walker (4) ; Mahony v. East Holyford Co. (5) ; In re Romford Canal Co. (6); Webb v. Herne Bay ComÂmissioners (7); Christie v. Taunton (8).] THE MASTER OF THE ROLLS :— The claim before me is on foot of a sub-mortgage of a mortÂgage, under the seal of the company, to Mrs. Josephine Florence Lupton, to secure £3400, and bearing date the 9th October, 1895. The claimant, Williamson, in 1898, advanced to Mrs. Lupton £2750, obtaining from her a sub-mortgage, dated the 26th April, 1898, to secure that sum and interest ; and he subsequently lent £100 more as an additional charge on the same fund. The first and principal question in the case is as to the validity and extent of the charge acquired by Mrs. Lupton under her mortgage. To ascertain this it is necessary to consider some of the circumstances of the company and of the mortgages. The Gwelo (Matabeleland) Exploration and Development ComÂpany, Limited, was incorporated on the 7th February, 1895, and was wound up by order of the 14th December, 1897, under Jan 27. (1) 3 De G. & J. 294. (5) L. R. 7 H. L, 869. (2) L. R. 3 Ch. App. 355. (6) 24 Ch. D. 85. (3) Ibid. 758. (7) L. R. 5 Q. B. 642. (4) 31 Ch. D. 151. (8) [1893] 2 Ch. 175. 40 THE IRISH REPORTS. [1901. M. R. circumstances of a remarkable character, which I reviewed at the 1900. time in a considered judgment. The company was promoted by in re &c., Mr. L. S. Lupton, since deceased, the husband of Mrs. Lupton, GWELO, Co. the nominal mortgagee. He was then and remained. an uncerti- Wrtueni- SON'S CLAIM. ficated bankrupt ; but, notwithstanding, he had. some command of money as will appear. The directors were qualified by him and were his nominees. He entirely controlled the company. The property of the company consisted mainly of mines or mineral properties in South Africa, some at least of which have never been found, or identified ; and one of its objects was also exploraÂtion. Before the incorporation of the company, Lupton became acquainted with one Charles J. Fauvel, a mining engineer, who had had experience in South Africa, and conceived the idea of sending him out to inspect and report, not alone upon properties afterwards transferred, or pretended to be transferred, to the company, but upon others also in which he Lupton had an interest. To carry this out, he paid Fauvel a " retaining fee" of £400, as mining engineer, and subsequently sums amounting to £950 to equip an exploring expedition. When the £400 was paid, the company was not in existence. It was purely a personal matter between Lupton and Fauvel. From it the company never derived any benefit whatever. Fauvel did not go to Africa. The expedition did go ; and was, after the formation of the company, treated as being under the control and in the pay of the company. The contract was not originally between the company and Fauvel ; but it was afterwards adopted by the company, and any benefit which might have resulted from it (and, no doubt, benefit was expected or hoped for) would have belonged to the company. I do not think it can be held that the adoption of this part of the business was a fraud upon the shareholders. The share capital of the comÂpany consisted of £250,000, divided into 500,000 shares of 10s. each. These were all issued to Lupton in the names of his nominees (persons named Humby and Ridehalgh), some as fully paid up, and. the rest credited with 7s. 6d. per share, as if that had been paid up. This was to pay him for his interest in the South African properties. Thus all that remained for working capital was the right to call up the balance of 2s. 6d. per share. As Humby & Co. were men of straw, of course nothing could be VOL. I.) CHANCERY DIVISION. 41 raised from this source till Humby & Co. succeeded in selling and M. R. transferring Lupton's shares to the public. After that, whatever 1900. 4a reac., the shares sold for, a call could be , made on the holders ; but Lupton through his umbra got what he could in the first instance. Co. WILLIAM- These arrangements were afterwards modified ; but it is not now SON'S CLAIN. material to follow them further. Lupton had the strongest perÂsonal interest in keeping the concern going ; and as it could not go on without some cash for expenses, he undoubtedly did advance in cash £2050 for that purpose. There was no prospectus issued by the company. All its share capital was placed at once. But there were expenses, including the publication of an address or circular letter by the directors to the shareholders (designed to serve as a prospectus without being under the special regulations attaching to a prospectus) which had to be met. Of course Lupton was entitled to require security ; and he did so. This quasi-prospectus formed one of the chief grounds upon which I ordered the winding up of the company, but nothing turns upon it now. Meanwhile, Fauvel had been appointed by Lupton to be chairman of the company, his qualification being of course provided by Lupton ; and he ceased...