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Wist' Priits Court , before Mr . Baron JWorlln , Thursday , August 26 . Scott and Anothkr v . Dixojt . ¦ Mr . James , Q . C ., Mr . ^ Wilde , Q . C ., and Mr . Brown were counsel for the plaintiffs ; Sir Fitzroy Kelly ( the Attorney-General ) , Mr . Atherton , Q . C ., and Mr . Melhuish appeared fox the defendant . Mr . Brown opened the pleadings . Tie said John Scott and Robert Robinson were the plaintiffs , and Joshua Dixon was the defendant . The declaration stated that the defendant , was a director of a banking company , and that the shares of the company were transferable ; that the defendant , intending to deceive the plaintiffs ,
fraudulently represented that there -were profits of the company to be divided amongst the shareholders , and fraudulently printed and published a report , whereby he represented that the financial condition of the bank was sound , and that the shares were then of great value , whereby the plaintiffs were induced to purchase shares ; that there were no profits to . be divided among the shareholders ; and that the financial condition of the said company was not sound , whereby the plaintiffs lost the value of their shares and were forced to contribute towards the losses of the company . To that the defendant had pleaded , first , " not guilty ; " and , secondly , that the plaintiff ' s were not so induced . Upon these counts issue had been joined ;
haying some part and parcel in the management and direction of this bank , when he became a director was not satisfied with the state of affairs , nor with the course which matters' were pursuing ; and 1 believe that from time to time he did utter certain mur-• murings of discontent , but that he never took any active step to set matters right which he suspected , and suspected for some time , were going wroiig . So matters went on until June of last year , when Mr . Dixon , the defendant , having been informed that Mr . Smith , who had been a manager for some j'ears up to that time ^ was desirous of retiring , and was about to retire , was asked whether he would become a managing director , thereby of course having the opportunity of investigating and
sifting the affairs of the bank and thoroughly informing himself , if he was so minded , of what its true position and circumstances were . He acceded to the request . That was in the beginning of June , and at the time he was in London . He returned immediately to Liverpool , and he set himself to work at once for the purpose of ascertaining the true position of things ; and I must say that I will give him credit—for I believe it is believed generally of him—that if he had pursued the dictates of his own heart , and if he had attended to the warnings of liis own conscience and common , sense , and had stedfastlj' pursued the course which unquestionably he did mark out for himself in the beginning , this case would not have been b rought before vou , because , probably ,
—the losses of 1854 being all liquidated arid counted off—— the good , genuine business of the bank will enable the directors to pay 5 per cent , per annum without encroaching one iota upon the capital . " In laying this statement , before the shareholders , the directors , desire strongly to impress upon them , that its unsatisfactory character "—for it had been 7 . per cent , before then— "is to be attributed to the affairs of 1854 , and that apart from these the sound and legitimate business of the bank would have enabled it to pay the ordinary dividends , and also to add largely to the reserve fund , notwithstanding the losses that have been incurred subsequently to that year . They wish also to state their confident
expectation that the change they are making in the policy and regulations of the bank will effectually guard against the recurrence of similar results . " . This was a misrepresentation , and the defendant knew it , and if he did not know it he was equally responsible ; and if it was to be said he was ignorant , it must be retorted that he ought not to have been . But after the stoppage of the bank on the 26 th October , Mr . Dixon became chairman of the liquidators , and Messrs . Banner , accountants , prepared a statement of the affairs of the bank , which was produced at a meeting at which Mr . Dixon presided , when he said that the position of the directors was oneof very great discredit ; that at the time of the great loss through Mr . Doherty , in 1856-7 , he placed on the
books a record of his opinion that the nature of the transaction by which the loss was incurred was unbusiness-like , and . ought- not to have been incurred j that the managing directors were as blameable as the manager ; that immediately on becoming a managing director himself , he inquired into the condition of the bank , as to the declaration or non-declaration of a dividend ; that Mr ; Smith ' s statement led him to tho conclusion that none ought to be declared ; that this was assented to at a meeting of the directors , but at a meeting afterwards , suddenly convened , the decision was reversed . That was the statement upon which the r ^ Port , afterwards withdrawn , was founded . At the meeti ng ' , Mr . Woodward , one of the members ' , asked if the report was withdrawn bv the whole board or bv a part only .
and Mr . Dixon replied , "By the board , and to which I yielded , the motive being "—his motive or the inotive of the board , no matter which— "the motive being that it was Very dangerous in the then position of the bank to run the risk of the excitement that might be produced by the non-declaration of a dividend . It might have resulted in a run and the stoppage of the bank . " Not of the effect that would have been produced upon tho shareholders , but of tho effect upon the public , the customers of the bank , the moment it became bruited abroad , as it inevitably would have been , by a published report—a run upon the bank , its stoppage and ruin , they thought . " I acceded to it . only on the understanding recorded in the minutes , that the statement to the shareholders should contain a full and correct
disclosure of the position of the bank , even though it should disclose the fact "—he prayed attention to this" that a dividend was declared out of capital . " In tho report issued there was no shadow of such an intimation ; there was no reference to the dividend , except in the passage read ; and yet Mr . Dixon said the report , " well examined , shows the fact , although I do feel that it does not make the statement in the broad terms that would have been adopted if the intention had been to state added
that there was a very handsome surplus . " He that during July he was the only managing director present ; that in that month ho came to the resolution to join the rest of the directors in the conclusion that it was highly improper to declare a dividend . When tho accounts were published , the liabilities wore far boyona tho assets , calls had to bo made , and tho whole thing was a complete mass of ruin and desolation : arid it could not bo said that tho capital had been lost since July . Mr . Banner's first report ot written
tho 12 th November , said that 871 , 000 / . had been off and lost between Juno 1854 and Juno 1857 ; out in the report presented on tho 17 th February this year , Air . Banner made a statement totally at variance . VUlVMW j viz ., ( hat from scarcely any of the accounts wlnoii »«« been current upon tho accounts of tho bank for somo years had amounts been written off . " Uut Imforo tno directors ' report in July last an estimate was nnuie" » possible losses , amounting in tho aggregate to a 70 ' uu "'' Therefore there qan be no doubt that tins wan the mm w 870 , 000 * . referred to in Mr . Smith ' s report to Mr . ujmw in the month of Juno , and averred by . Mr . Huiinor , w « w had examined tho books on the 12 th November , to iin \ o boon written off before June In thnfcyonr , and a" 0 ' * ' 1 . ™! stated not to have been written off nltogothvr . " >»» doo ? that atate of things show ? That in the month * . Tnno nnn / Mvlinrr in « lift Alrnntnr * ' OWI 1 aOCOUIlt , tllU """'
of > the » rc 8 ervedffund-wtta-8 > vftllowed .. up . „ , XaXksk fea gJL- ^ . lodge , 108 , 000 / . was necousary for the loasos »» fllnl " * tho former year , 1851 , and the two or thrco youi «»« flooding it . Take that from tho admitted loan ol « " "• , " . so written off , and i 6 will leave soniowlio'o wou ^ 270 , 000 / , of capital actually gone They w «» J » „ by tho clause of their deed , upon asoortulnlntf wm . tho reserve fund was gono and ft quarter or ilioU" I ' "" ' capital , to summon tholr aubnoriborfl before « ' « " ?•"" Uko measure *) for the dissolution of thfl o » . ii » a » y- xlw
if not a thoroughly accurate statement of the affairs of the bank , yet at all events one showing that the state of the concern was utterly insolvent , would have been put forth ; my clients would then never have become purchasers of shares , and would consequently never have had a right of action against Mr . Dixon . It appears that he did investigate . Mr . Smith , who still was the manager of the bank , laid before him , anxiously inquiring , as he was , whether there ought or ought not to be a dividend then declared—you may judge when he investigated that question that he had his own serious doubts whether there ought , to be " a dividend— -Mr . Smith laid before him a statement . That statement , the learned counsel expected , would be produced by the other side .
It satisfied Mr . Dixon no dividend ought to be declared , but he was overruled . A report founded upon it was furnished ' to the directors , and sent to a printer , when it was withdrawn and another substituted , upon which this action was founded . The plaintiffs , who were warehousemen , studied this report , and , though the reduction of the dividend brought down the shares , they thought the report disclosed a state of things which would justify them in investing their money in shares , which they did . The report was addressed to the 21 st annual meeting of the proprietors , on the 28 th July , 1857 . It represented the existing capital at . 1 , 000 , 0002 ., that the net profits of the past year , after deducting expenses and 45 . 825 / . for bad debts , " amounted t 6 G 9 , 318 / ., to be ap-7439 / to be added
propriated as dividend , leaving . to the reserve fund , which would make it 109 , 000 / . Nearlv the whole of the 45 , 000 / . lost was attributed to the frauds of a customer to whom the bank had lent it carelessly . The directors continued in the report to gay , " In winding up tho affairs of 1854 a year which it is well known was most disastrous to those customers of the bank who were engaged in the colonial shipping trade—heavier loss has been sustained in the realisation of the assets "—he prayed their attention to this— " in the realisation of the assets then taken over by way of security , and in the liquidation of estates then considered good , than could possibly have been anticipated . " What is the effect of had actuallrealised the
that ? It is this : that they y assets at that time , and that the estates actually had been , and then were , liquidated , and that there had been a loss in such realisation and liquidation—a loss then ascertained , because the assets had been realised and the estates liquidated . " The directors have thought it their duty at one to reduce the dividend to the rate of 5 per cent , per annum , on the grounds' that , taking even the mo 6 t favourable view of the liquidation of those accounts , the whpl , o of the reserve fund will be required to meet the losses incurred . " The losses ascertained , after the realisation of the assets and the liquidation of tho estates , will amount to so much . They will requiro something more to place tho bank clear , and that will be met by tho reserve fund , 108 , 000 / . or 109 , 000 / . Tho whole of tho reserve fund will bo required to moot tho losses incurred . " Nothing more ; not a word about
the capital being required , but only that tho whole of the reserve fund will be required , clearly intimating that that will place thorn clear in their accounts . They go on— "And that , on the other hand , taking tho most unfavourable view consistent with probability , tho good current business of tho bank will , in their opinion , bo Bufflctont to admit of < " ° regular . ^'" 0 " tH 0 ( ltvi " ' doncl without oncroaoning H > n the caplfnl * ?< * Htr ** tlrB Bamo period of tho coming year . " Undor tho most unfavourabl e oiroumstances consistent with probability , tho good current business of tho bunk will ouablo thorn , at tho same period of tho next yoar- ^ -in tho month of July , 1858—to divide 6 per cent , without onoroaahlng upon tho capital . Not oho word said about the capital but that . What Is tho meaning of it ? Horo la tho oaplt il intact , and the good buslnosa of the bank Is buoI » that tho annual profits , after paying all expenses
Mr . James , Q . C . j in opening the case , said the plaintiff sued for the value of ten shares purchased by the plaintiffs last August , together with the further sums paid upon them , 5 Z . a share , a call made subsequently to the failure of the bank , amounting altogether to 142 / . 7 s . 6 d . The bank was established in 1837 upon the remains of that belonging to Messrs . Hope and Co . There was a deed of arrangement vesting the management in directors , who were to keep books , &c , and " make out and declare a full , true , and explicit balance-sheet " ; halfyearly . At the general meeting in July such a balancesheet and report were to be exhibited ^ including all items the directors deemed expedient for the interests of the company to be made public ; and every report was to
be binding upon the propr ietors } unless some error should be discovered before the next subsequent report , and therein rectified . Dividends were to be declared out of clear profits after deductions for bad and doubtful debts , and for providing a reserved surplus fund . If that and onei-fourth of the paid-up capital were exhausted by . losses , a meeting was to be called and the facts made known ; ~ " and upon the application of any two proprietors the company might be dissolved . The defendant ( said the learned counsel ) is . a gentleman , I believe , of high position in the commercial circles of this town , and some few years ago he came to Liverpool from . New Orleans , where he had , by the experience of several years—rl dom ' t know how
manyacquired what is supposed to be an intimate acquaintance with banking transactions . He had been a banker at New Orleans , and soon probably after his arrival here the firm with which he was connected—I presume a commercial firm—having an account with the Borough Bank , and he thinking that with the experience which he had acquired he probably might be enabled to benefit himself as well as others—I give him credit for that intention ^—thought it was not undesirable on his part to become a shareholder and director in the Borough Bank ; and he accordingly examined well the published reports of the directors from time to time as they had been issued * and , making up his mind on the expediency of joining that company , he purchased shares solely that
he might , according to his own words , become a direcor ; and a director accordingly he did become , somewhere about three years ago . At the time when he soined the bank the affairs were not conducted exactly n the manner provided for by the deed to which I have nviteel your attention . It provides for the management being vested in the directors . The directors consisted for-the most part . of gentlemen of eminence and standing in the town , high in tho mercantile world , and they delegated their powers to three gentlemen who were elected from their body and called ' managing dirocors . " These managing directors like wise appointed nother person , called " tho manager , " So that proably it will turn out that , in the great multiplicity of nstances for years gone by , previous to the summer of ast year , the manager directed the managing directors ,
arid tho managing directors ruled tho directors . That will probably be tho state of things . All that } , lio directors contributed to the concern was tho sanction of their high names and tho lustre which could bo shod about the bank by their undoubted respectability . Di-¦»^ ectKirs ^ the y ^ w , erfl ^ n ^ non lucentfo . They directed because they had nothing to diroot . There were accounts weekly or fortnightly placed boforo thorn , which informed them , as I believe , of IJttlo ' or nothing that was transpiring . They trusted to the mnnaging directors , and it is not at all unlikely that tho managing directors trusted too much to tho manager himself . There can be very Uttlo doubt—as X think you will sco—that Mr . Dixon , with tho experience that ho had acquired in banking in New Orleans and with tho expectation ho had formed of
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THE LIVERPOOL BOROUGH BANK .
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988 THE LEADEE . [ No . 444 , September 25 , 1858 .
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Citation
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Leader (1850-1860), Sept. 25, 1858, page 988, in the Nineteenth-Century Serials Edition (2008; 2018) ncse.ac.uk/periodicals/l/issues/vm2-ncseproduct2261/page/4/
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