AFFAIRS OF A LOCAL OIL SYNDICATE.

Gisborne Times, Volume XXIX, Issue 3172, 18 March 1911, Page 2

AFFAIRS OF A LOCAL OIL SYNDICATE.

IS MR. CLAYTON OWNER OR TRUSTEE?

The hearing of the civil action of AVm. Knox Chambers, of Gisborne, sheepfarmer, and all the other shareholders in the East Coast Petroleum Company, versus AVm. Lissant Clayton, of Gisborne, land agent, Geo. Hutchison, of Wanganui, barrister, and the East Coast’ Petroleum Company, was continued before Mr. Justice Chapman at the Supreme Court yesterday. The claim was that Mr. Clayton be declared a trustee for the plaintiff company of 500,000 shares, which he holds in the New Zealand Oilfields, Lta. Mr. Morison, of' Wellington;. and Mr. ,T. AA 7 . Nolan appeared for plaintiff; Mr. Lusk for defendant Mr. AA 7 . Lissant Clayton; Mr. Geo. Hutchison, the other defendant,,in person; and Mr. Blair for the company. Mr Hutchison, continuing his evidence, said he used his best endeavors to dispose of shares. First of all he tried to place the 10,000 shares, but this was impracticable. Then be tried to get an English firm to take them over. He then with Mr Clayton’s concessions tried to float. an English company, but this was also impracticable. In March, 1008, after he returned from Home, he visited Gisborne. Plaintiff was then in the .Campbell Islands. Mr. Clayton had heard of a Mr. Hornibrook going to England in connection with AVest Coast mining properties, and it was thought he might be able to do business. Witness went into the 25 concessions belonging to the company, and also Mr. Clayton’s 10 concessions. That was an intricate business, as some of the company’s possessions were precarious and some were irregular, and nearly all were subject to encumbrances or other difficulties. He had drawn up a memorandum giving the particulars of the company’s concessions. He concluded that if the company were valued at oneflflh of the total value it would be right. He made an arrangement whereby the company’s concessions were to be'.sold for one-fifth of the total value of the fortyfour concessions. Fourteen of Mr. Clayton’s concessions were in terms absolute, and the others were comparatively fresh. That arrangement took the form of an option for nine months. That was the best tliov could do, as they did not know what Air. Hornibrook could do. The sum of £20,000 was mentioned as the amount of working capital, and this was the amount witness’s experience in London led him to believe. Air. Hornibrook was unsuccessful. He remembered meeting Air. Chambers once, and he asked witness if he had been able to do anything in the concessions, and witness replied “No.” In August. 1909, Air. Clayton and witness had a conversation with a view to trying to form a company. AAT'tness considered anew the company’s concessions, and, he found the time limit had run out in every one of them that was subject to a time limit, and the company at that time.could be called upon to start work within six months. Two of them had died, and numerous changes had occurred in the encumbrances and inch transactions attaching to them. The land in one concession was leased. Air. Clayton’s concessions were practically unaffected. One concession, the smallest of all, had died, and he considered that it was in the best interest of the shareholders to endeavor to get Air. Holmes to dispose of the whole forty-four concessions at Home. The brokerage was _ increased. In consequence of instructions to Air. Holmes, a sale was effected. The East Coast Petroleum Company was to get one-fifth of the capital, less brokerage. On Alav 1-fth last year he saw Air. Chambers, and it was arranged to have a meeting. AATtness road a memo he had prepared to him, and he did not appear to understand' it. Tie had not brought liis copy with him. only his duplicate of the syndicate agreement, and under that agreement he (Air. Chambers) contended lie was entitled to one-third of the concessions sold to the N.Z. Oilfields, Ltd., by Air. Clayton. He said be took it that that agreement had never been rescinded.

“I Thought I Convinced Him.” Witness said to him that his claim was not only a proportion of the concessions sold to' the New Oilfields Company, but any other obtained by Air. Clayton. He said lie supposed so- His present claim was on the consideration obtained from tlie N.Z. Oilfields. Ltd. He said Air. Clayton had obtained scores of concessions subsequent to the sale to tlie N.ZOilfields, Ltd., and his claim appeared to extend to the last of these. Witness said it was flattering, but. not right. The agreement, witness pointed out, had been, superseded bv the resolutions of January. 1907. He said he would not admit that, and witness expressed liis surprise. Witness then asked him to go.into what had been done since 1907. AATtness bad liis copy of tlie memorandum, and asked Mr. Chambers to go through it with him. TTe had written it in AVangamii, where he had no access to tlie records, but be had refreshed his memory that morning. He made some corrections, such as the number of shares, in pencil. Then they went over what witness had done during his absence, and he had arranged for onefifth of the company’s concessions out of the consideration obtained by Mr. Clayton from the New Zealand Oilfields. Ltd. Mi ; . Chambers said he did not mind that, as his claim was to the whole lot. There was a good deal of conversation, and witness understood that he had seceded from his objection. His Honor: For lack of argument.

Witness: I thought I convinced him. Witness said lie asked Chambers to consider the matter before the meeting on Aloiulay. AATtness promised to bring down a report. The minutes embodied his report. At the meeting on May 16th Air. Chambers did not raise any objections ns to rights under the old agreement. Air. Chambers, lie had not the slightest doubt, was mistaken as to what took place. Air. Chambers did not raise fhe slightest objection to the , confirmation of the minutes. There war, a discussion as to the shares they were to obtain from the Oilfields Company. There was a statement drawn up. by the secretary as to the disposition of the 96.000 shares. The question was whether the shares should be realised or whether they should be disposed of, and it was decided to leave them to the original shareholders. A meeting was held in the afternoon, and the minutes were confirmed without dissent, and Mr Chambers did not raise any objection concerning the agreement of 1906. He agreed to call in and sign the scrip certificates on behalf of the East Coast Petroleum Company, and later he did so- On .'July 18th he saw Mr. Chambers at he Poverty Bay Club, and he said what a"pity it was there should be litigation among friends, and asked Mr. Chambers if the matter could not be settled by arbitration. TTe said it was in the hands of his legal advisers in Wellington, and he enuYl not give his consent. Tlie deed lie had prepared included the section in the AlcKenzie concession, but later if; was accidentally left out of a further deed. If: was at Air. Chambers’ suggestion the company was wound up voluntarily. Air. Chambers attended the meeting, and contended Mint the agreement of Juno I.oth was still in force.

“You Were a Pure Philanthropist.” To Air. A fori son : He could not. say who drafted tlie precis of the position of the East Coast Petroleum Company which had been printed. He could not say he had read it when he handed it into Court on the preivous day- A number of copies were, sent to him in London, and he may have made use of them. AATien in Auck-

MEMBER’S ACTION AGAINST CO-DIRECTORS.

OWNERSHIP OF VARIOUS CONCESSIONS INVOLVED.

land lio made an endeavor, chiefly through Mr. Hunt, to place part,of the 12,500 shares then in the joint names of Messrs. Clayton and Chambers. He asked one man to take an interest in the matter, and he believed Mr. Hunt was in conversation with many men. He must have got his information from witness. He had done a great deal of work to justify getting 250 shares. Witness had also done a great deal himself in seeing several men, and also seeing Mr. Rich. He worked as well as Mr. Kick, as he was desirous of seeing the company floated. Auckland not being propitious lie went to London. He was there from the middle of May to the end of September. The principal part of his visit was the company’s business. Mr. Morison: That cost money. Witness: Yes. Of course there was a fund for financial assistance. Mr. Morison : A kind general term. Yon have never got anything for your expenses. Witness: I have made no claim.

Mr. Morison : You were a pure philanthropist. When at Home you also tried to dispose of Mr. Clayton’s shares? Witness replied that he had. No one had any interest in Mr. Clayton’s shares till April last year. His Honor: You are interested now? Witness: For services rendered. Mr. Morison: No doubt you did render considerable service. Witness instanced what he had had to do in: the segregation of shares. Witness, continuing, said he did not draw Mr. Hunt’s attention to anything that should be corrected. In January, 1907, there could be no doubt that Messrs Clayton, Chambers, and himself were all free to go out and get concessions in the same field in competition to the company of which they were directors. Witness said he tried to sell some of Mr. Clayton’s shares in London and Auckland. He did not tell those people to whom he spoke about taking shares that the directors of the company had made such arrangements that they could go into competition with the company. Continuing, witness said that he believed that there was no limit on the concessions they might obtain. Referring to the resolutions dated February 28th he saw there was no limit on the concessions. There was none ns far as the objects were concerned. He left for England on 30th March, and the resolutions on 28th March were the final terms on which the narties agreed to the company being based. The agreement, of June 10th. 1900. was superseded by the resolutions of January. A Question of Propriety. Mr. Morison: It was important to Mr. Clayton?

Witness: He was the one who had most to say against the continuance of the old agreement. Witness, continuing, said that he assumed Mr. Hunt prepared the circular. He did not tell Mr. Hunt before he went to England that the directors were free to compete against the company. He thought that there were instances where preliminary rights were given. It never occurred to him to prepare a contract setting out the properties to work which the company was formed. He had a document containing the concessions which were to be acquired by the company only. Anyone applying for shares on the face of the memorandum of association would have no notice of the limitation placed on the properties of the company? —No. Did you see any commercial propriety in asking people to take up shares under the circumstances? —No. But in negotiating in Loudon he showed them the 25 concessions belonging to the company. He did not go beyond stating those were the concessions belonging to the company. He did not tell anyone that the company had decided to take no more concessions. He had been doing a good deal of work. Mr. Clayton a good deal, Mr. Chambers a little, and Mr. Finn none in connection with the syndicate. Prior to the meeting of January 23rd Mr. Clayton complained both by letter and verbally that Mr. Finn was "impossible.” The meeting of January 23rd was. substantially speaking, held for the purpose of terminating the syndicate agreement. He tried to be a very careful business man. He did not show the note on the back of the document to Mr. Chambers. On the agreement of June 10th. at the suggestion of Mr. Clayton. he made a note regarding Mr. Finn’s withdrawal.

Why did you depart from your general rule and not make a scratch of a pen on it?—l thought the resolutions of January 24th were explicit and terminated the agreement, and a note on the agreement was unnecessary.

Witness, continuing, said that those resolutions expressed what he had done at the meeting, and whatever was resolved upon was contained therein. He did not consider when looking into the relative value of the - concessions how many of Mr. Clayton's were leasehold. He did not consider how perpetuity affected the values.

Mr. Clayton in the Witness-box. Wm. Lissant. Clayton, in evidence, said that in 1906 he was interested in the acquisition of oil interests. He joined originally with plaintiff (Mr. Chambers). Mr. Hutchison, and Mr. Finn, and he was one of the signatories to the agreement of June 10th. 1006. He worked under that agreement personally. Mr. Chambers got one concession (McKenzie's). Witness got Monckton's. but put it in Mr. Chambers' name. Mr. Chambers gave one concession over his own property, which witness did not consider of much value, and this was borne out later. Mr. Chambers did absolutely nothing more than what witness had told the court. "Witness frequently complained of that, and urged Mr. Chambers to get concessions. Of the twenty-five concessions he got all the rest but one. When the agreement was signed in the first place he took it, and everyone took it, that that was binding on them while they got concessions, and ultimately they were going to form a company. On January 23rd and January 24th they held meetings. At the first meeting Mr. Hutchison went to find Mr. Finn, and at the request of witness and Mr, Chambers put the minute on the back of a document stating liis withdrawal. They discussed the question of concessions, and witness said his labors, as far as getting concessions for the company, had come to an end. He produced a typewritten schedule, and he pointed out those were the concessions he had actually obtained up to that date, but there were a few others he might obtain, as he had had them promised, and he mentioned the names. He remembered saying distinctly at the time that it was a fair thing to include these in the list of the company's concession. He then said that was all he was going to do for the company, and the next concessions would be his own. Mr. Chambers.-' or Mr. Hutchison said "Certainly" or "Of course." With regard to the schedule it was arranged that he was to post ’it to Mr. Hutchison, with the additional concessions if lie got them. There were certain resolutions passed, and that wastin' starting of the company originally projected, as they had then got sufficient concessions for the purpose of the company. They all agreed that the original agreement was superseded. He mention-ed-it outside the office again. He had obtained concessions on his own account, and had continued to do so right up to the present day. When Mr. Tiicli arrived witness prepared plans of the concessions for his inspection Mr. Chambers had vol-

unteered to take) Mr. Rich round all the concessions. He did take him round some, and then appealed to witness to get a guide, which he did. In May, 1907, in a letter Mr. Rich suggested'the acquisition of concessions in Waipiro. Mr. Rich did hot have to go there for the company, and did not see the country. Witness recollected a meeting being held between Messrs. Hutchison, Chambers, and himself in March, 1908. He had then obtained five concessions, and ho mentioned this in the presence of Mr. Chambers. He thought it was later talked about by the three outside his office. When the transfer of the concessions from witness to the Gisborne Petroleum Company were signed by witness Mr. Chambers saw it. Mr. Chambers up to the time of going to the Campbell Islands was often invited by witness to inspect the books and correspondence. Mr. Hutchison was to go Home and disnose of the property of the company. He was given carte blanche. Witness mentioned to the 'meeting lie had some concessions, and he was getting others, arid it was agreed that if Mr Hutchison thought it desirable to float a company in conjunction with witness’s concessions, he could do so. Witness referred to it all through as a second comnany. When referring to his concessions he called them his own. or the No. 2 concessions. He sent Home a schedule containing concessions on his own _ account, and also a letter. Mr. Hutchison was unsuccessful in floating a company. “Not as Hopeless as That.”

In 1908 they made another attempt through Mr. Hornibrook to dispose of the concessions. They discussed the concessions, but his mission was also unsuccessful. Negotiations with Mr. Hornibrook had not been brought to a close when Mr. Chambers returned from the Campbell Islands. He met Mr. Chambers in Gisborne shortly after his return, and he told him in effect that Mr. Hornibrook was trying to float a company over the combined concessions, but up to that time he had been unsuccessful. Mr. Chambers remarked that he could write his £IOO off. Witness said he did not think it was as hopeless as that. He considered the values of the shares before he went, and Hie would not have taken a fifth share if he had not been interested in the company. He would not have looked on it so leniently if he had been dealing with an outside party. He bargained with Mr. Hutchison, the managing director of the company. Mr. Hutchison had no interest or. promise of interest in his concessions at that time. Ultimately he heard of another man in London, Mr. Holmes, and ho proposed to communicate with him. He got wliat purported to he an extension of his option. His old option had expired when they were negotiating with Mr. Hornibrook. The result of his negotiations with Mr. Holmes was that the N.Z. Oilfields Company was formed.

On resuming after the luncheon adjournment Mr. Clayton continued his evidence.

He said that in April he sent to Mr. Chambers a letter enclosing a memorandum which he had received from MrHutchison. Mr. Chambers called on him soon afterwards, r.nd he (witness) reviewed the whole position with him, and offered him access to the minute book. He remembered asking Mr. Chambers if it were reasonable, putting aside their agreement, to expect to participate in everything that witness had done up to that date. Mr. Chambers then contended that he had influenced concessions, and witness had asked him to name the concessions. Mr. Chambers could give no name with the exception of that of Mr. Monckton. Witness also reminded him that before the formation of the company he had given him concession forms with which to obtain concessions, and Mr Chambers had stated that he still had the forms in his possession. Ultimately it was agreed to let the matter stand over until Mr. Hutchison visited Gisborne. Mr. Hutchison came up. and at the meeting Mr. Chambers did not make any claim to concessions under witness’s agreement. To Mr. Morison: His first transaction with Mr. Hutchison took place early in June, and he had not known that gentleman long at that time. He did not at that time think that he was able to get concessions. Having come to the conclusion that it was desirable to get concessions. he. in conversation with Mr. Hutchison. arranged that they should see Mr. Chambers, and as a result it was arranged that all three should get concessions. Mr. Hutchison was not a resident of Gisborne, and he knew him through Mr. Finn introducing him. Witness was a farmer for eleven years at Tiniroto. and towards the latter end got Jo know Mr. Chambers. There was no question as to any other person before he met Mr. Chamber®. He knew Mr. Chambers a® a ceoloeisL Witness did not know flint Mr. McKenzie had refused to give him a. concession-

More Abc’.’.t the Agreement. Witness, proceeding, said that _ there was a rival syndicate in the district at that time. He gave Mr. Chambers forms of concessions, and expected him to be able to get concessions among: the settlers. He 'vent to the meeting on January 23rd with a firm determination to have the interests of Mr. Finn and Mr. Chambers defined. The resolutions embodied in the minute book on January 24th had not been previously discussed by Mr. Hutchison and himself. He knew nothing of the proposal of the resolutions dealing with the allocation of shares until then. TTe communicated with Mr. Hutchison, and as no one was getting any concessions he became dissatisfied. He told Mr. Hutchison that he was not going to get any more concessions, and wanted his interests defined. Several times the question of others not getting concessions had been discussed, and was becoming; more accentuated. When Mr. Hutchison arrived in Gisborne prior to January 23rd he probably discussed with Mr.'Hutchison the basis of the company, namely, that they should get equal concessions to date. At this time he was not. more communicative to Mr. Hutchison than to Mr. Chambers —rather the contrary. On January 24th it was agreed the three should be directors. At the suggestion of Mr. Chambers and himself the retirement of Mr. Finn was noted on the agreement by Mr. Hutchison. The minutes of January 24th amounted to the abrogation of the original agreement. There was no mention of the rescinding of the agreement, as everybody understood it was so. He took the minutes, and did not note that the agreement. had been rescinded. As soon as he got the memorandum from Mr. Hutchison he forwarded a letter to the plaintiff. Frederick C. “Wilkinson said that he was acting as secretary to the East Coast Petroleum Company, and it was part of his duty to attend meetings and take minutes. He took the minutes of May 16th, 1910. He was present during the whole time. Mr. Chambers was there, and' Mr. Hunt was represented by proxy, which Mr. Hutchison held. It was lodged at the proper time, and everything was in order. No one entered a protest. There was some discussion on the report, but no objection to motions. Mr. Chambers did not protest about Mr. Clayton’s concessions. When he heard Mr. Chambers stating in evidence that he protested he was confusing it with a subsequent meeting. There was no protest at a subsequent meeting held the same day. He worked out the proportion of shares, and the statement was exhibited at the meeting. To Mr. Morison : Hq thought there was some general talk between Mr. Hutchison and Mr. Chambers about the proportion of shares in the new company. He did not think it was necessary to make a. note of . any discussion, except it was in the form of . a motion. He would easily remember if any protest had been made. Mr. Chambers, re-called, said that at the meeting in March, by (lie manner in which Mr Clayton mentioned concessions, he thought that it was the company’s concessions he was referring to. and those may have been discussed in March. 1907. He never heard of the so-called Clavton concessions in Hondo-. The object of the March meeting was to further discuss the floating of the company. He never heard

of any discrimination between the shares, and had never heard No. 2 schedule mentioned.

Remarks by Mr. Meritor.. Mr. Morison submitted that the onus was on defendants to show that the fiduciary relationship established by the agreement of June 10th, and which followed from their becoming directors of the East Coast Petroleum Company, Ltd., had been abrogated either by the rescission of the original contract or by some plank in the constitution of the company by which these directors were not under the ordinary equitable obligations. Ho submitted that if defendants failed to prove, and the onus was on them, that they were .released from their fiduciary capacity, plaintiff should succeed. The first observation as to whether the original agreement was rescinded was this; They had on the one side that the obligations of the three remaining partners were never altered, and this was supported by the whole of the documentary evidence. Against this they had the statement of Messrs. Clayton and Hutchison, and the conversations between the two by which it was contended the three were no longer bound by their fiduciary position. They had to show by conversive evidence that Mr. Chambers not only but knew to what he was assenting. This was just as much necessary to the rescision of a contract as to the making of one, and it was important that the proof should be conversive evidence, as defendants contended that by the rescission the plaintiff had lost a right he otherwise would have had. It was a divesting of rights, and before the Court could uphold defendant’s contention *hey had to have evidence. Mr. Hutchison's evidence as regards the January meeting was general, and the minutes embodied all that was done, the rescission of the contract being made by resolutions. They had to look at the minute book to see how far the agreement had been treated as having been rescinded. The resolutions did not say that the company was limited to the 25 concessions then in existence. On the contrary the resolution to obtain Mr. Rich’s report, not only on concessions, but on the general country visited, showed the narties contemplated that the East. Coast Petroleum Company would proceed to obtain more concessions. More important was the fact that there was not one word that the company should be limited to 25 concessions, or that the fiduciary relationship was modified in the smallest degree. Mr. Hutchison said that the work was being thrown on Mr. Clayton. The contract was rescinded as regards Mr. Finn and others, and a note of it was made at the time. Mr. Clayton told them that he discussed with Mr. Hutchison how the three should carry on. plainly showing he wtts not going to put Mr. Chambers in the same category as Mr. Finn. The resolutions of January and the minutes of the March meeting indicated that the company’s powers were unfettered. There was no suggestion of limitation of the directors’ obligations toward® the company or further shareholders. The circular prepared by Mr. Hunt did net show that the directors were allowed to compete. It seemed to him to amount to this, that the relations between Mr. Hutchison and Mr. Clayton were directed towards creating negative evidence of the rescission of contract. No doubt they probably desired to exclude plaintiff, but it was never brought to Mr. Chambers’ mind, and his consent was never obtained. Without that consent they could not deprive him of his right. The Court had to be able to say that Mr. Chambers was abandoning any rights hs had to Mr. Clayton. Dealing with Mr. Rich’s report and plan, he submitted all helped to get Mr. Clayton concessions, which might have proved detrimental to the syndicate. He referred to the manner in which Mr. Chambers protested, and thought that if the arrangement as suggested by defendants had been come to Mr. Clayton’s letter of April 22nd was inexplicable. Plaintiff never agreed to forego his rights or give up his benefits. Mr. Lusk’s Address.

Mr. Lusk submitted that the passing of the resolutions on January 24th must be taken as a rescission of the contract. The object of the original contract between the parties was that Mr. Clayton undertook to obtain concessions to be put in trust for the signatories, and the number of shares was to be determined by the amount of money advanced by each. As soon as the resolutions were passed they formed the syndicate into a company, and the agreement therefore could not hold good. He submitted that tlier.e was nothing in the agreement so that its benefits could have been passed on to any other company. The terms prohibited that, and it was intended that the shares should be held only for the signatories and no others. The evidence given by Messrs. Hutchison and Clayton showed that it was only a preliminary agreement to the formation of a company, and the resolutions passed on January 24th were only carrying this agreement into effect. When these resolutions were passed the provisions of the agreement were abrogated. Messrs. Clayton and Hutchison had said that the former had spoken about further concessions, and if he was telling the truth it was fairly clear that any further concessions were to be his own property. If that was c-learly stated at a meeting of the parties it was right to consider the agreement was rescinded. He thought it was proper and within the province of the Court to consider the preliminaries surrounding the formation of this company; and he would ask the Court to say Mr. Clayton was giving truthful evidence. He did not think that the plaintiff’s evidence was. in the circumstances. so reliable as that of the other two. It was for His Honor to find whether Mr. Clayton had obtained information dealing with the company, and without which he would not have got the concessions. There was no information in Mr Kick's reoort which could not have been got from the Government geological reports. Mr. Clayton did not obtain any concessions through secret knowledge obtained for the company. The information was open to all the members of the com nan v.

After Mr. Hu! eh Lon had addressed the r 'onrt His Honor adinurned the Court till Ift."o a.m. to-day. when Mr. Morisou will reply.