Newspaper cuttings, from the manuscript, MEGAdigital (MEGA² IV/19).1 Traducción al español
THE OVEREND, GURNEY, AND CO. PROSECUTION.
The trial of the Overend and Gurney directors was resumed yesterday morning, shortly after ten o’clock, in the Court of Queen’s Bench, at Guildhall, before the Lord Chief Justice.
The court was not nearly so full as on Monday, when a large number of barristers were attracted by curiosity to witness the opening of this celebrated case, and the public was largely and eagerly represented, even on seats where hearing was next to impossible.
Mr. Lewis, of the Joint Stock Companies Registration Office, produced the memorandum and articles of association, and other documents connected with the registration of Overend and Gurney Company (Limited).
A good deal of discussion took place between counsel and the Judge with regard to the production of the minute books kept by the directors.
Mr. Harding, official liquidator, having been called for the purpose of producing these books, stated, in reply to Mr. M‘Mair, that he was appointed to that office under the winding-up order. He then produced the minute books, and extracts from the minutes of several board meetings held shortly after the formation of the new company were read.
A certified copy of the prospectus having also been produced by the same witness.
Mr. Charles Edward Jones, solicitor to the defendants, produced the original deed transferring the business of the old company to the new one, and proved, as the attesting witness, the execution of it by the defendants. He also produced the second deed.
The Solicitor-General said that as the witness was the gentleman who prepared the deeds he wished them to examine him in order that he might give explanations with respect to them.
The Lord Chief Justice thought it would be best to have the deeds read first and explained afterwards.
Dr. Kenealy said he had always understood that in such a case all that was necessary was to put in the documents.
The Lord Chief Justice observed that the court had to consider quo animo the deeds were made, it being alleged that there was a fraudulent intention on the part of the defendants.
Dr. Kenealy remarked that the documents could speak for themselves.
The Lord Chief Justice said if the court know what instructions were given by the defendants, it would then be in a position to judge how far the charge was borne out.
Sir J. Karslake said there was a third deed, to which neither Mr. Gordon nor Mr. Rennie was a party.
Cross-examined by the Solicitor-General—I myself hold 100 shares in the company. In June, 1865, I learnt from Mr. J. H. Gurney that there were certain negotiations pending for the formation of a new joint-stock company, the intention being to purchase the business of Overend, Gurney, and Company, and I was requested to attend a meeting of the members of the old firm, and some other gentlemen who were to form a new company, at the house of one of the partners, in the St. James’s-square. I was never aware of any negotiations with the National Discount Company. The gentlemen present at the meeting were Mr. J. H. Gurney, Mr. Henry Edmund Gurney, Mr. Robert Birkbeck, Mr. Gibb, Mr. Gordon, and Mr. Rennie. I do not recollect any one else. I did not know Mr. Gordon before, but I believe he was a merchant well known in the City. Mr. Rennie, I believe, was also a merchant in City and was a customer of the firm. He had no interest in the concern. Mr. Gordon was a friend of Mr. Rennie. These men, as far as I knew, were men of position and wealth. So far as I remember the prospectus was the principal topic. The price of the good will of the old firm was discussed. The new company were to have the assets turned over, and were to be guaranteed against losses from the assets being taken over. There was a certain class of assets,—claims on estates in liquidation—which it was not considered expedient to pass over to the new company. They were to be got in by the old firm. Three years and a half was fixed as the period for winding up these claims.
The Lord Chief Justice—What had the new firm to do with that?—They were guaranteed to the new company by the old firm.
The old claims were to be wound up by the old firm, and the proceeds were to form part of the funds of the new company?—Yes; they were to be paid to the new company from time to as they came in. The deficiency was to be a balance against the old firm, and the old firm was to pay interest upon that balance. It was in point of fact a credit.
You say the proceeds as they came in would go to the new firm, and then in the end, if there was a loss, by which I suppose you mean a deficiency, that was to be made up by the old firm?—Yes; there was to be a suspense and guarantee account, and the old firm was to pay interest. In point of fact it was to be a credit.
The Lord Chief Justice—It comes to this, that the new company are to have all the assets; but whereas there are some doubtful ones, those shall not be made over to you; but we will undertake that as they are realised from time to time, the amount shall be paid to you, and as between you and us, the difference between the nominal value and that which they realise, we will guarantee it.
The Solicitor-General—That is it.
The Lord Chief Justice—Shortly, it is this—We guarantee you that the four millions of assets shall realise four millions?
Witness—Yes.
The Solicitor-General—Can you tell me at what sum these four millions were valued at the time of the negotiations? What they were expected to realise?—Something over a million.
And the difference was the subject of a guarantee?—The subject of a guarantee.
Was there a valuation made at the time of the private property of the individuals of the firm, as well as of the property in Lombard-street?—Yes, I believing there was.
Did the discussion proceed on the footing that there would be a considerable surplus?—It did. I was at Mr. Gurney’s, in St. James’s-square, also on two or three subsequent occasions. On the second occasion a prospectus was produced, and that was given to me for the purpose of getting it printed. I think proofs were given to each of the directors for the purpose of corrections. When the prospectus was settled I was instructed to prepare the memorandum and articles of association, and whatever was necessary to carry out what was agreed upon. In consequence I put myself in communication with Mr. Braithwaite, who has large practice in that class of conveyancing. I gave him a copy of the prospectus, and gave him verbal instructions to prepare a deed or deeds for the transfer of the business, explaining to him at the same the arrangement with reference to the accounts that were not to be transferred, and the guarantee to be given by the old firm. I saw him more than once. I was once accompanied by Mr. J. H. Gurney, who came with me to explain the mode of applying the proceeds of the separate accounts, and the technical mode of keeping the accounts. I did not give instructions to prepare two deeds instead of one. It is always left to the conveyancer to determine whether there should be one or more.
Did the Messrs. Gurney, or any of them, give any instructions whatever that there should be two deeds?—Certainly not. I got two drafts of deeds from Mr. Braithwaite. As soon as I got them I had them copied, and took them to Mr. Gordon and Mr. Rennie, in Lombard-street, and asked if I should go through them with them. Mr. Gordon said it would be more satisfactory that the deeds should be looked over by some independent attorney on behalf of the purchasers. I left the drafts with Mr. Gordon for that purpose, and he promised that they should be looked over by Mr. Messrs. Wilson and Carpmael, the solicitors to the Oriental Bank, of which he was chairman. There were several meetings between the counsel on both sides, and this took some little time. On the 11th of July the first deed was still unsettled, and the second deed had not at that time been touched by Mr. Fooks, the counsel. The prospectus was issued on the 12th of July. On the 12th of July I got a meeting with Mr. Wilson. Inasmuch as the brokers thought it absolutely necessary that we should have the deed mentioned in the prospectus, I got the draft settled at once.
In consequence of this was it that the first deed assumed its present form?—It was.
And it was left at your office to be consulted as the deed of contract?—Yes, the draft was.
Was it some days after that that the second deed was settled between Mr. Fooks and Mr. Braithwaite?—It was. There was a good deal of discussion between them, and it was finally settled between them about the 25th of July. They were afterwards executed together on the 27th of July.
Do you remember whether it was discussed at those meetings whether the members of the old firm should contribute to a greater or less extent according to their means if there was a deficiency?—It was so understood.
When Mr. Boyes, the secretary, applied to you for the deed to be shown to the members of the Stock Exchange, which deed did you send them?—The first.
Why did you do that?—Because I conceived it was the contract between the vendors and the new company.
Had any of the defendants anything to do in giving you instructions to do that?—None whatever.
Had you any motive or intention whatever to conceal the second deed?—None whatever; there was no concealment about it.
Then I take it that, in sending the first deed to the Stock Exchange, you did it on your own judgment and responsibility?—Entirely.
Were you, shortly after the formation of the new company, instructed by John Henry Gurney to prepare a deed between the partners of the old firm of Overend, Gurney, and Co., appropriating shares among them, and fixing their proportions?—I was.
Did it appear to you at that time that there would be a very large surplus after all the debts were paid?—The figures were not before me at the time, but I understood that the surplus would be large if the estates were disposed of.
What was the estimated amount of the surplus?—700,000l.
Did you know as a fact that John Henry Gurney had 10,000l. a year?—Yes, and a great deal more.
Dr. Kenealy having objected to this kind of testimony,
The Lord Chief Justice observed that if the case were a civil one the defendants would of course have an opportunity of making their won statement, and it seemed to him that their private solicitor, who as such was acquainted with the state of their affairs, should say what he knew about them. The witness must of course confine himself to what was within his own knowledge.
The Solicitor-General (to witness)—Do you know that the whole of John Henry Gurney’s property was sold?—Every shilling’s worth of his private property has been sold, and what was realised has been paid into the concern. Mr. Edmund Gurney’s property was sold for 170,000l. or 180,000l.
Cross-examined by Mr. Serjeant Parry, who appeared for Henry Ford Barclay—Mr. Barclay became a director at the last moment, just before the issuing of the prospectus. He was then a director of the Cable Construction Maintenance Company. He signed the articles of association in rather a hurry, being about to go away in the Great Eastern, which was to lay the Atlantic Cable. The first meeting of the directors at which he was present was held on the 8th of August, 1865. He was not present at any of the discussions about the prospectus, and his name did not appear in it. I had instructions to prepare a third deed, dated the 2nd of August, in consequence of a stipulation on the part of Mr. Barclay that in the event of the bankruptcy or death of either of the parties, before three-and-a-half years had elapsed the estates should be realised without waiting. The object of that third deed was to afford greater security to the new company. Mr. Barclay held 1,000 shares, and I understand that he held them to the last. I don’t know of my own knowledge that he has paid 45,000l. upon his shares. The third deed was not actually executed till September.
Cross-examined by Sir John Karslake—No promotion money was to be paid. Mr. Gordon had independent legal advice. After the draft was prepared I saw him at the Oriental Bank. I left a copy of the draft with Mr. Gordon and Mr. Rennie, on the understanding that it would be placed in the hands of their own solicitors.
Re-examined by Dr. Kenealy—Was solicitor to the two Messrs. Gurney and Mr. Birkbeck. Had an interview with them before the Limited Company was brought out, about the prospectus. That document was the principal topic at the first meeting of the Overend and Gurney directors. There was a general conversation about a surplus, the calculations with regard to which were based on some figures that were not produced. Thought it was Mr. Barclay who introduced the question of a surplus. The directors had satisfied themselves that there was a surplus. Did not remember any discussion on the point; the thing was taken for granted.
Were you aware that the concern had been losing half a million a year for some years?—I was aware that there had been large losses, but was not aware of their extent.
Examination continued—Did not recollect the defendants making any allusion to their losses, but was aware at the time that they had been losing considerably.
Did it not occur to you to ask them what their losses amounted to?—I understood that they had satisfied themselves that the guarantee would be perfectly ample, and that there would be a surplus.
Did they say so?—On a subsequent occasion. The subject at that time was the settlement of the prospectus.
Why did it not occur to you, when they were promising a guarantee, to question them about their losses?—Because I was perfectly satisfied that they had a surplus.
Did you say nothing about their assets or liabilities?—No; I simply asked for the form of prospectus; it did not fall within my province as a solicitor to question them about their assets.
Was not the 4,000,000l. part of the assets made over to the new company?—No; I did not consider so.
Examination continued—Gave the prospectus at once to counsel, with whom he had two or three interview. His instructions to Mr. Braithwaite were based on the prospectus. Mr. Braithwaite considered two deeds necessary for carrying out the transfer and the general arrangements, and he should not think of dictating to counsel in such a matter. Very material alterations were made in the drafts. The prospectus was issued as soon as possible after the preparation of the original deeds, because there was a general election pending, and the directors thought that if it did not come out at once it might have to be put off for months. Mr. Fooks was a possible candidate.
Have you ever known any other case in which several deeds were prepared?—I have known no other case similar to this. Believe that the Stock Exchange require that all the documents connected with the transfer of a business should be laid before them. The second deed did not seem to him material in reference to the transfer. It was not at variance with the first deed. The provisions of the second deed were in conformity with those of the first; they were collateral, that was his view.
Reading the first deed as a lawyer, would you not have supposed that the assets were to be realised within a short period?
The Solicitor-General objected to the question!
Dr. Kenealy thought it was necessary, as tending to show whether the two deeds were antagonistic.
Was there anything, in your opinion, in the first deed to show that the assets would not be realised within a short period?—No.
The Lord Chief Justice observed that the second deed referred to the first.
Sir J. Karslake said it excepted such accounts as required to be excepted.
The Lord Chief Justice remarked that by the first deed all the old assets were to be transferred under a certain guarantee, while the second provided what should be done in case the new company declined to take those assets. The old company was to get what it could for those assets within three and-a-half years, and pay it over to the new company, and any difference between the assets realised and the amount transferred was to be made up out of their private property. The value of the assets to the new company depended on the value of the private property of the guarantors.
In further examination, the witness denied that when some shareholders visited his office on one occasion to inspect the original deed, two other deeds were kept back. What they saw was, he said, three drafts of the same deed.
In reply to the Lord Chief Justice, the witness said the private estates sold after the stoppage realised 1,800,000l.; adding that they are sold under disadvantageous circumstances, and when money bore a high rate of interest.
Sir J. Karslake read passages in the second deed, to show that the 500,000l. to be paid for the good-will and the guarantee out of the private estates were carried to a suspense account.
Mr. Vallancy Lewis and Mr. Ernest Robinson were then called, but neither of them answered.
Dr. Kenealy said these witness were intended to prove the bankruptcy of some of the debtors in the excepted accounts, but perhaps the proceedings in bankruptcy would be admitted.
The Solicitor-General said the defendants being charged with conspiracy ought not to be called upon to admit anything.
The Lord Chief Justice said this was a part of the case where, having proved the prospectus, they might call persons who were induced to take shares from having read it.
Dr. Adam Thom was then called, and examined by Mr. Moir. He said—I am a member of the Canadian bar, and now reside in this country. On the 13th July, 1865, I purchased 60 shares in Overend and Gurney (Limited), but before I did so I got a copy of the prospectus from my brokers and took it back to them the next day. I produce the certificate of the shares. They run from 45,430 to 45,489, and though I was only a transferee they are all made out in my own name. They bear date the 15th November, 1865, the last day on which the instalment was payable. I paid 900l. in all—420l. to my bankers, and 240l. twice over to Barclay, Bevan, and Co., the bankers appointed by the company. Since the stoppage I have paid 1,500l. in calls. I was induced to take shares from the statements in the prospectus and my knowledge of the respectability of the partners, more particularly Mr. Gordon. One of the inducements to me to take shares was the first clause in the prospectus that 15l. a share was all that would be required, and for that reason I took exactly as many shares as I had funds for. Then another clause that I thought favourable was that Mr. Gordon, who was chairman of the Oriental Bank, was to be a director, and that three of the members of the old firm were to be directors of the new company. I was also influenced by the high hereditary character of the house. The stoppage of the company took place on the 10th of May, 1866. On the 11th of June, 1866, I was present at a meeting of the shareholders held in the largest room of the London Tavern. Mr. John Henry Gurney, after some question, was placed in the chair. A voice asked whether all the directors were present, and Mr. J. H. Gurney replied that they were. There were 500 or 600 persons present, whether they were all shareholders I did not know. During the proceedings I put some questions. I asked Mr. Jones whether any pains had been taken to ascertain the value of the private estates of the partners before the transfer. No answer was given, other business was going on. I repeated my question a second time, and then I asked a third time, and then Mr. J. H. Gurney was about to answer, but I said I could not receive an answer from him. After Mr. Jones had said what he intended to say, Mr. William Rennie rose and stated, in terms which I do not specifically recollect, that they had estimated the value of the assets, he and his friends the new directors, and after estimating the value of the assets, and some other items, such as the goodwill and the value of the buildings, there remained a deficit of about 1,400,000l., and that without investigating the value of the private estates in any way whatever, he and his colleagues had assumed that they must be worth at least 1,400,000l. I rose immediately, and asked whether I was to understand that the private estates were to answer only the 1,400,000l., or they were to be applicable to any deficiency that might occur; and the answer was—from whom it came I cannot say—that the private estates were liable to an unlimited extent. Mr. Rennie stated, I think, nearly at the beginning of his address, that what the company wanted at the time of the transfer was fresh capital; and he also stated, as a proof of the good faith of the directors, that at the time of the collapse every one of the directors had been a large shareholder and depositor. There was also something said by Mr. John Henry Gurney which I had rather not state, as it came in the nature of a confidential communication. No documents were produced. The great point before the meeting was as to the private estates. Mr. Lawrence, a solicitor, stated that the private estates would be in our hands in the course of a month. I had no information of the state of the company. I had made up my mind to a total loss, and went to the meeting more from curiosity than anything else. A committee of investigation, or defence association, was appointed, and I was the chairman of that association. It had its origin in some Chancery proceedings of Mr. Dundas. I had no knowledge of a second deed. I first heard of it about the 7th or 8th June, 1866. The meeting was held on the 11th June, and the report of the liquidators, which was issued a few days before, spoke of it, and of a suspense and guarantee account. I did not see the first deed before I became a shareholder. After I had made up my mind to take shares I called at Mr. Jones’s office, in Mildred-court, to look at the deed, and I was told that the deed had been removed from that office to 65, Lombard-street, the office of the bank, immediately after the allotment. This was on the 4th August, 1865; the allotment, I believe, had been made somewhere about the 30th of July. I made no further inquires about the deed. I did not see the first deed, but I saw the second. I saw them both together about the beginning of September, 1866. If I had seen the second deed before I became a shareholder I should not have become one. Viewing the first deed by itself, I should not be alarmed at the expression, “excepted accounts;” but in the second deed I found excepted accounts under the head of suspense and guarantee accounts. The character of all the items in the second deed would have staggered me, although the amounts were not stated. Beyond that, there is a postponement of personal guarantee in the second deed which would have alarmed me. In the original deed there is nothing about postponement till the 31st of December, 1868. There is clearly a discrepancy between the guarantee as given in the first deed and the guarantee as postponed in the second.
Sir J. Karslake objecting to the course of evidence,
The Lord Chief Justice said he thought the witness was entitled to refer to the sections as the ground of his position.
Witness continued—The first, thirteenth, and seventeenth sections and the schedule would together. I am quite satisfied, have deterred me from taking shares. As chairman of the committee of investigation, I have paid special attention the accounts of both the old and the new company.
The witness being about to refer, as was understood, to some figures of his own,
The Solicitor-General objected to such a mode of proceeding, observing that the witness could only refer to Mr. Harding’s (the liquidator’s) balance-sheet.
Dr. Kenealy contended that the witness, having examined the accounts, was entitled to give the result.
The Lord Chief Justice thought he could only refer to the statements of the official accountants.
The Solicitor-General admitted that the witness had a right to refer to accounts, but maintained that he should not be allowed to make a speech upon them.
Cross-examined by the Solicitor-General—I felt this country in 1832, and returned to it in 1839, and again in 1854. I was appointed chairman of the Shareholders’ Defence Association. I subscribed nothing; I gave my time and labour. I did not take the defendants into Chancery; Mr. Dundas and Mr. Peek did that. I believe there were affidavits in the proceedings, but no answers.
Are you master of your own situation?—Perfectly so.
Are you permitted to be so?—If I were “permitted” I should not be master of it.
Have you “in that spirit of fair play which is part and parcel of your being” refused to let the defendants have the full benefit of their own affidavits in the Chancery proceedings?—I see you are reading from a passage which I have written. I am not at all offended. (Laughter.) I have all along wished to act in a spirit of fair play, and to have those affidavits and affirmations put in.
As you are master of your own situation, will you consent to their being put in now?—Mr. Lewis objected to their being put in, and that is my reason for acting as I have done.
I want to know whether you are master of your own situation?—I am master of it as far as wishes go.
Will you tell me why they are not put in?—Because my legal adviser thought it would be prejudicial.
The Lord Chief Justice—Prejudicial to what?—Prejudicial to the investigation of this case.
The Solicitor-General—Am I to understand that nothing would satisfy you but the condemnation of the defendants? Do you not think it is essential to a thorough investigation that, in that spirit of fair play which you say is part and parcel of your being, they should have the benefit of their own affidavits and answers?—I have said so, and I say so still.
Who prevents their being put in?—My legal advisers.
Have you had any consultation with them?—I am not bound to state.
Who prevents their being put in?—My legal advisers.
Who prevents their being put in?—I cannot tell you.
Which legal adviser prevents it?—I cannot tell you; it has been a subject of consultation.
You cannot tell me which of your legal advisers prevents you from doing that which is essential to fair play?—I cannot tell you at this moment.
What do you mean by saying that your legal adviser prevents their being put in?—Mr. Lewis—
The Solicitor-General—No, Mr. Lewis is not your legal adviser now.
Witness—The other legal advisers—
The Solicitor-General—Who?
Witness—I have had no legal consultation.
Then how have you gathered their sentiments?—I presume from their not putting them in.
Do you not know that if they were put in an acquittal in this case would be inevitable?—No answer.
Dr. Kenealy said he knew nothing about what was being referred to.
The Solicitor-General (to witness)—One gentleman has repudiated having had anything to do with the matter; who is the other?
Witness—I have submitted that they might be put in, and have wished them to be put in, but I have had no conversation with the legal advisers as to why they are not put in.
The Solicitor-General—To what would it be prejudicial?—Prejudicial to the investigation of the case.
Then you don’t agree that it is required by that spirit of fair play which is part and parcel of your being?—That is their opinion.
The Lord Chief Justice—When was it that you gathered that such were the sentiments of the legal advisers?—I have put the documents into their possession, and have instructed them that the thing it to be done if they deem it desirable. If I had been allowed to conduct my own case here, I most indubitably would have put them in.
The Solicitor-General—Do you know that in those Chancery proceedings some or all of the defendants have been cross-examined?—I have been present at part of the cross-examination of John Henry Gurney, and at part of the cross-examination of Robert Birkbeck.
Do you know that all the defendants were cross-examined?—I do.
And do you know that in every single case in which they have been cross-examined the decision has been in their favour?—I cannot answer the question.
Cross-examination continued—He had not applied to the Court of Chancery for money out of the estate to carry on these proceedings, but he believed an application was made by Mr. Lewis in his name. He presumed that he was liable for the costs of that application. He had had the administration of the prosecution fund, and was not aware that any portion of it had been applied in paying the cost of Chancery proceedings. He believed that no part of the prosecution fund had been applied to any other purpose than the prosecution itself.
By Sir J. Karslake—I have known Mr. Gordon by reputation ever since I came to England in 1863. I knew him in the character of chairman of the Oriental Bank. I know now that he was also a director of the Union Bank. As soon as I instituted proceedings against him I did all I could to remove him from the chairmanship of the Oriental Bank, and I made a motion to that effect. I had not then charged Mr. Gordon with conspiracy, but proceedings had been taken against the liquidators in Chancery. He was not then dispossessed of his office, but he subsequently resigned. I do not know the circumstances under which he resigned. I never went to the company’s office for the purpose of seeing any document. I did not see the memorandum and articles of association before I bought the shares. The office of the company was about five minutes’ walk from the offices of the association. I saw the articles of association in my broker’s office when I bought the shares. I saw one of the articles which stated that, excepting balance-sheets, no accounts or documents should be seen by any shareholder. Mr. Gordon had 200 shares. If he has paid the whole of the calls on them, which I believe he has, he has paid 8,000l.
Re-examined by Dr. Kenealy—I do not know whether Mr. Gordon got the money out of this concern. I have understood a large amount was put down for salaries. Mr. Gordon, being a director, had 500l. a year. I am a shareholder in the Oriental Bank, and it was only in consequence of Mr. Gordon’s connection with this matter that I desired to remove him from the chairmanship of that bank. In that I acted alone. The document cited just now by the Solicitor-General was a pamphlet written by me a few months ago. My present legal adviser is Mr. Dawson. I instructed him to put in the documents, and he said, “We shall consider how far it is desirable.”
The Lord Chief Justice—You say if you had seen the second deed you would not have bought the shares, but you tell us at the same time that you did not see the deed mentioned in the prospectus?—Yes.
Now I ask you as a fair dealing gentleman if in the prospectus the word had been “deeds” instead of “deed” would that have made the slightest difference?
Witness—I do not think it would.
Mr. Thomas Clark stated that in August, 1855, he purchased 40 shares of the company, at a premium of 1⅞, and held them down to the stoppage of the company. Had paid upon them to the present time 1,600l. Before he bought the shares, had seen a prospectus at the office of the solicitor of the company. He asked for one, and he believed they gave him one. He took it home. Bought the shares on the general faith that Gurneys were respectable. Applied for 60 shares, and got none. Knew now of the second deed, which he called the secret deed. If he had known of it at the time, should not have applied for shares.
Cross-examined by Sir J. Karslake. I read the prospectus. I saw the paragraph in it that the memorandum and articles of association, and the deed for the transfer of the business, were to be seen at the offices of the solicitor. I did not ask to see the deed. I did not know of the secret deed, and I did not ask to see the other. Before I bought the shares I ran my eye through the memorandum of association. I saw nothing unusual in it. I did not read the deed; in fact I was careless of the matter.
By the Court—I suppose if it had said “deeds” instead of “deed” it would have been exactly the same thing. You would have relied on the respectability of the Gurneys?—I should.
When you are making application for shares in a concern that is likely to be beneficial, do you make it a practice to go and look at the deeds, or do you take it for granted?—I have taken it rather for granted.
Mr. William Peek deposed that he saw several of the prospectuses of the company, and purchased 2,000 shares, and had paid 94,754l. on them, reckoning the costs. Was induced to buy them from the respectability of the firm of Overend and Gurney and the names of the directors. Since the failure, had heard of the second deed. If he had known that it contained the clauses referred to by Mr. Thom he should not have taken shares.
The Solicitor-General objected to this class of evidence. It was not a question as to what acted on the mind of the witness, which might be a ground of an action for damages, but this was a criminal proceeding.
The Lord Chief Justice said it was clear that there was a statement of accounts of which the witnesses knew nothing, and a deed of which they knew nothing. If the prospectus had referred to two deeds, or a dozen, or twenty, he did not think that these parities would have thought it necessary to inquire about them. But he did not think he could shut out from the case what would have been the effect on the mind of men of business if they had known of this second deed.
The Solicitor-General said he did not wish to shut it out of the case. On the contrary, he considered it part of the case; but this evidence was merely hypothetical.
The Lord Chief Justice—Part of the necessary allegation of the prosecution is that a certain course of conduct was adopted on the part of the defendants for the purpose of misleading the public, and this matter of the second deed is alleged as part of the fraudulent scheme, part of the mode in which the alleged conspiracy was to be carried out.
Mr. Serjeant Ballantine—Certain facts are stated, and certain conclusions are drawn from those facts. A man says, “I was told so and so, and I handed over a certain sum of money.” The question is whether that is the cause.
The Lord Chief Justice—There is a great deal more than that. It is alleged that if it had been known that this second deed was in existence, the public would have been deterred from taking shares. But I will talk the matter over with my brethren, and if this kind of evidence is tendered to-morrow, I will state whether we think it should be received.
Examination continued—On the 10th of May, 1866, while passing the office, he saw that it was being shut up. He went in and saw Mr. Birkbeck. Mr. Birkbeck said the Bank of England had refused assistance, adding as a reason, that there was an old grudge between them. Witness expressed his surprise and said the failure would produce a crash which would extend through the whole kingdom, to which Mr. Birkbeck made no particular reply. He said the directors had just applied to the Bank. Witness was then residing in Liverpool, and had just run up to town. He remarked to Mr. Birkbeck that if everything had been honest in the matter all would come right. Mr. Birkbeck said nothing in answer to that. The next day witness called again and saw Mr. Gibb. A day or two previous Mr. Gibb had told him that they would divide 7 per cent. dividend, the accounts having been made up, and shown profit to that extent. Mr. Birkbeck gave assent to that. Witness then went on to speak of the assurance he received from the directors as to the amount that would suffice to meet liabilities.
Cross-examined by the Solicitor-General—Chancery proceedings against the liquidator had been commenced in his name to settle the question of liability. Dr. Thom did not assist him. At the time of the stoppage money was at a high rate. The term “tightness” was comparative, and money could have been had then on good security. Could not say how much Mr. Birkbeck told him that he had invested in the bank, but the smallness of the amount struck him. Was not intimate with Mr. Gibb, but knew him as a business man. That gentleman’s name influenced him, with other names, in investing. Bought shares in the market. Saw the prospectus, and bought on the strength of it.
At a quarter to five the court adjourned till this morning.
W. B. Scott, one of the jury, asks up to correct the statement of the Globe, which we reprinted yesterday—that he took the affirmation as a Quaker, instead of the oath. This was not the case.
THE OVEREND, GURNEY, AND CO. PROSECUTION.
The trial of the Overend and Gurney directors was resumed yesterday morning, shortly after ten o’clock, in the Court of Queen’s Bench, at Guildhall, before the Lord Chief Justice. So far as numbers are a criterion the interest was again further diminished, the court being by no means inconveniently filled.
The first witness called was Mr. Richard Barrow.
Examined by Mr. M. Moir—Was a magistrate of the county of Derby. Having seen the prospectus he purchased in the autumn of 1865, 200 shares at from 2 to 4 premium. Paid 15l. a share before the winding up of the company, making altogether 3,000l., since which he had paid additional calls, making a total of 8,000l. Was induced to take his shares by a belief in the statements of the prospectus.
If you had known before you took shares what you now know is contained in the second deed, would you have taken them?
The Lord Chief Justice (intervening) said since the court rose on the previous day he had discussed that point with his brother judges, and they were all of opinion that such evidence was not admissible.
Mr. John Home, examined by Mr. Yelverton—Resided near Carlisle. On seeing the prospectus in the Money Market Review he applied for and obtained 120 shares. Paid 15l. a share up to the winding up, and had paid two 10l. and one 5l. a share since. Was induced to purchase by the names of Messrs. Gurney and Mr. Barclay. Henry Edmund Gurney was assistant manager of Mr. Haydon’s bank at Carlisle.
Cross-examined by the Solicitor-General—Knew Mr. Head, who married into the Gurney family, and had some confidence in him. Was aware that he had 1,000 shares, and had understood that he continued to hold them. Purchased his shares about the middle of August.
Re-examined by Dr. Kenealy—It was on the names in the prospectus that he relied when he bought his shares. Mr. Head’s connection with the bank did not make the slightest difference.
Mr. Charles Beard, examined by Dr. Kenealy—Resided at Bury St. Edmunds, and held shares which had cost him altogether about 6,300l.; that amount including a premium. First saw the prospectus in the Times, about the 13th of July, 1865. Came up to London, and went to Mr. Jones’s (the company’s solicitor’s) office, in St, Mildred’s-court. Was shown into a room, and a clerk there pointed him to a table on which lay two or three copies of a deed. Asked for a copy. Did not apply at once for shares, but went home.
The Solicitor-General objected to the course of the examination.
The Lord Chief Justice thought the witness might give evidence about asking for a copy of a document which he had been invited to inspect.
By the Lord Chief Justice—The clerk told him the copies which he saw on the table were all alike.
By Dr. Kenealy—Some days after he called at his banker’s, at Bury St. Edmunds. The banker told him that he had some prospectuses. He told him (the banker) that he had seen the deed, and he filled up a form of application for fifty shares. Took shares because he thought the concern must be a sound one.
From what did you draw that conclusion?
The Solicitor-General objected to the question.
The Chief Justice observed that the names of Messrs. Gurney must have been well known in the eastern counties.
By Dr. Kenealy—Applied for the shares under the influence of the names he saw in the prospectus.
Cross-examined by the Solicitor-General—Was not influenced by his banker in the matter.
Cross-examined by Mr. Giffard—The clerk simply stated that the copies he saw were all copies of one deed.
Mr. Frederick William Lewis, a clerk in the Joint-Stock Companies Registration Office, produced a copy of the winding-up order of the Court of Chancery, dated the 22nd of June, 1866; also the articles of association of the Atlantic Royal Mail Steam Packet Company (Limited), registered on the 8th October, 1858, and a resolution, dated the 18th of July, 1864, for the winding up of that company.
The Lord Chief Justice said he did not see what that company could have to do with this case.
Dr. Kenealy observed that its assets formed part of the 4,000,000l. transferred to Overend, Gurney, and Co. (Limited).
The witness then produced the winding-up order in the case of the East India and London Shipping Company (Limited), registered on the 3rd of August, 1864.
Mr. William Smith, a clerk in the Chief Registry of the Court of Bankruptcy, produced a deed of inspection in the case of Kelson, Tritton, and Co., dated 30th June, 1865, together with a list of the debts, amounting to 430,000l.; a deed of inspection in the case of Halliday, Fox, and Co., dated 15th February, 1865, the debts amounting to 507,370l.; a deed of inspection in the case of Messrs. Lawrence and Fry, dated 12th July, 1864, the debts amounting to 391,228l., Overend and Gurney appearing as creditors for 245,000l.; a deed of inspection in the case of Leopold Bruzewitz, dated 13th June, 1866, the debts amounting to 403,850l. 9s. 6d., Overend, Gurney, and Co. appearing as creditors for 135,334l.; a deed of composition in the case of James Cox and Sutton, dated 8th June, 1866, the debts amounting to 7,663l.
The Solicitor-General objected that the copy of the last deed had not appended to it the signatures of the parties.
The witness observed that they were certified copies.
The Lord Chief Justice did not consider the objection a reasonable one.
The Solicitor-General thought the objection material, because it was sought to show what the assets were at the time when the deed was executed.
The Lord Chief Justice said if it were insisted upon the original must be produced.
The witness also produced the inspection deed of Joseph Brown Rigby, dated July 8, 1866, and registered on the 3rd August.
The Lord Chief Justice—But here is the same difficulty.
The witness also produced a deed of inspection and arrangement of J. E. C. Koch, dated 19th December, 1866.
The Lord Chief Justice—But where is the use of going on with them.
Mr. Moir—I am happy to say this is the last.
Mr. Ernest Robinson, clerk in the Bankruptcy Court, produced the proceedings in bankruptcy in the cases of David Leopold Lewis, there being two adjudications, one dated 4th January, 1865, and the other dated 7th June, 1865—(the first being on his own petition, and the second on the petition of his creditors); of Astley and Co., the adjudication being on the 19th May, 1865; of George Garraway, 9th March, 1866; of Charles Joyce and Co., May, 1865; of Charles John Mare, of Millwall, 21st December, 1867.
The Solicitor-General objected that the latter could have nothing to do with the case, the transfer to the limited company being in July, 1865.
The witness also produced the proceedings in the case of John Stuart, of the Millwall Ironworks; the adjudication being on the 18th May, 1865.
Mr. Oswald Howell, accountant, was then called. He stated that he carried on business in Cheapside, and was employed on the part of the shareholders and creditors to investigate the accounts of Overend, Gurney, and Co. The company began to incur heavy losses in 1859; but there were heavy losses in 1857. There was a large division of profits in 1858, and he thought subsequent events proved that those profits had not been earned.
Have you formed an estimated of the average losses from 1860 to the time of the transfer?
The Solicitor-General objected, saying that the witness could only speak from the books, and the question was not pressed.
The witness stated that in 1858 he found there was a division of profits to the amount of 240,000l.; in 1859, 360,000l.; in 1860, 216,000l. In 1861 the partners received their salaries, amounting to 3,600l., but there did not appear to have been any profits divided.
The Lord Chief Justice—Is there not a profit and loss account?
Witness—There is no entry showing whether profit carried to the profit and loss account was really profit, because the bills that were running might have been bad. Large advances for instance were made on certain accounts, and the interest was carried to the profit and loss account, but the advances might be a loss.
The Lord Chief Justice—There is another important element. In 1861 they divided a profit. What was there at that time to show that the debts which proved a loss were bad debts?
Witness—That could only be known by the firm themselves.
The Lord Chief Justice—How did they know they were bad? Many a man is believed to be a good solvent debtor, but we may easily believe from a combination of circumstances that which at one time appeared to be a good debt becomes a bad one. What is there to show that in 1858 there was anything to lead to the conclusion that these debts would turn out to be bad?
The Foreman—Will you show us any account that was presented to the partners once or twice a year showing the profit or loss.
Witness—There are no actual balance-sheets.
The Solicitor-General—How do you know?
The witness said he had asked Mr. Boyes for all papers, and had found no balance-sheet. He proceeded to state that in 1862 no profit was divided, but the partners received their salaries of 3,600l. There were four who received salaries that year. In 1863 there was no profit divided, but 4,600l. was paid as salary to five partners; in 1864 no profits were divided, but 4,000l. was paid as salary to four partners. In 1865 no profit was divided, but in June 1,500l. was paid to the partners for salaries. From the general ledger of the old firm it appeared that the old firm debited the new firm with 15,284,641l., which included securities, 8,507,661l.; advances, 1,070,573l.; country bankers, 5,658l.; general ledger, 13,303l.; bills in hand, 1,345,135l.; cash, 120,394l.; suspense and guarantee account, 4,013,896l.; discount ledger, 1,969l.; single deposits, 3,648l. The limited company was credited with the following items:—Cash on loans, 9,606,422l.; country bankers, 1,909,458l.; discount ledger, 25,628l.; advances, 64,074l.; balances in general ledger, 435,380l.; rebate on bills, 72,610l.; bills payable, 38,773l.; private ledger balances to the credit of the private partners, 1,053,715l.; single deposits, 2,676,579l. That account was taken from the old book. In the new book the debtor and creditor sides were reversed. There did not appear to have been any other liabilities pressing on the firm. In one of the bill books there was a large amount on account of bills rediscounted. That book was called “An Abstract Diary of Bills.” The bills rediscounted by the old firm amounted to 7,177,000l. Bills rediscounted were bills for which the firm had received the money. In the event of those bills not being taken up by the parties, Overend and Gurney would have had to meet them, but with the exception of 2,000,000l. connected with the Norwich Bank, the bills were, he believed, first-class ones. On the 31st of July, 1865, the bills on hand amounted to 17,201,370l. Of that amount 7,177,000l. consisted of bills rediscounted; 1,000,000l. odd was bills on hand, and 8,000,000l. odd was transferred to the new company. In his judgment 3,000,000l. of the 8,000,000l. of bills transferred were of an exceptional character, being connected with such names as the Millwall Ironwork Company, and Bruzewitz. Lane, Hankey, and Co. were in the books for 2,000l.
In your judgment were many of the bills of an unreliable character?
The Lord Chief Justice did not consider such a question a proper one.
Dr. Kenealy said he would put the question in this form—In your judgment were the bills generally good or bad ones?
The Solicitor-General objected to such a question.
Dr. Kenealy (to witness)—Are you acquainted with the commercial status of the merchants of the City of London? (Laughter.)
The Lord Chief Justice said he did not consider an accountant a competent witness on such a point. His lordship then asked the witness if he had traced out the history of the bills in question in connection with the new company?
The witness replied that he had, and that it appeared in the books.
Examination continued—Had gone through the various items which made up the suspense account. The amount transferred would not amount to 15,000,000l. if the suspense account were deducted from the total. Assuming the defendants’ statement to be correct that they did not transfer the 4,000,000l., the assets could only amount to 11,500,000l. The 4,000,000l. was entered in the new company’s accounts as a debt from the old firm to them. Produced a cash-book of the old firm, containing the particulars on the 31st of July of 4,484,000l., the suspense account. There were amounts deduced which left a balance of 4,213,000l. On the same day that that amount was debited to Overend, Gurney, and Co. there was brought to the credit of that account 1,053,715l., being the balance standing to the credit of the partners in the private ledger of the old firm. That reduced the account to 2,910,000l.
By the Lord Chief Justice—That amount was not actually paid, but was credited.
Examination continued—The money actually due was 2,910,000l. It did not include the 250,000l., part of the purchase money of the business. After deducting that the balance would be 3,160,000l. There was a credit of 250,000l. for good will which was not deducted.
The Lord Chief Justice observed that that sum was not to be deducted, but to stand as part of the guarantee.
The witness said he had mentioned it because it appeared in the account.
Examination continued—The proceeds of the sale of shares amounted to 172,633l.; 561,000l. was brought into the new concern by the old firm from their private property and monies outstanding. After making all deductions the balance due from the old firm of Overend and Gurney to the new company on the 31st of July was 2,150,000l. On the day of the suspension of the new company the amount of that account was 2,970,000l.
The Lord Chief Justice said what had to be ascertained by the court was the real position of the company at the date of the transfer. The charge against the defendants was that they induced persons to take shares by fraudulent representations. What the directors did after the transfer had nothing to do with the issue.
Dr. Kenealy said he wished to trace the course of the liabilities.
The Lord Chief Justice said that might form the basis of another indictment, but could not affect the present question.
Dr. Kenealy desired to show the mala fides of the defendants—that after the transfer of the business they advanced money to support houses in which they were interested.
The Lord Chief Justice did not see how the circumstance that the defendants continued to make bad debts after the transfer took place could affect the question before the court.
Dr. Kenealy said he wished to prove that what were handed over as assets were in fact not assets.
The witness being about to make some remark,
The Lord Chief Justice told him that the court would hear him when he was asked a question, adding, “Don’t you make yourself too much of a partisan.”
The Solicitor-General observed that he did insist on this connexion of the old firm with the houses to which money was said to have been advanced being proved.
A long discussion took place on this point, the Solicitor-General saying that what was attempted to be proved was that the members of the old company who were directors of the new advanced money belonging to the new firm in order to improve the position of the old debtors, but that, he contended, was no form of the indictment.
The Lord Chief Justice said it seemed to him that where a person was charged with a fraud the subsequent application of the money might be an ingredient, as showing what were the motives for the original transaction. He overruled the objection, and said he was sorry it had been made. It was then arranged that the printed deposition of the witness taken before the Lord Mayor, and which he stated was correct, should be taken so far as the aggregate of the new advances to the old debtors was concerned, and in that deposition it was stated that the old debts had been increased by advances made by the limited company by 615,700l. 18s. The witness went on to state that the gross profits of the new company during the ten months of its existence were 223,638l., but of this upwards of 130,000l., made up of two items of 62,000l. and 68,000l., was made up of interest on the suspense and guarantee account. 92,000l. in round figures was the profit resulting from the transactions of the limited company. The real profit was only 4,552l. On the 2nd May Mr. Barclay transferred his deposit of 71,000l. to the Norwich Bank. Mr. Rennie had twenty shares. He was a member of the firm of Cavan Lubbock, and Co. There were bills discounted and loans made by the new company to Cavan, Lubbock, and Co. to the amount of 691,000l. Of this 200,000l. was for loans several times renewed. The remainder was discounts of commercial bills. Loans which had been renewed four or five times constituted the larges portion of the 200,000l.
Cross-examined by the Solicitor-General—Took a great deal of interest in this matter, but not more than he usually did in such cases. As regarded the expenses of the Defence Association, he only acted as secretary, and therefore gave no guarantee. Did not now belong to any firm; ceased to do so two or three days before he went into the Bankruptcy Court. The firm to which he had belonged were accountants. He had not published any work on this subject. Three years ago he made a report to the Defence Association, and that was published. Believed he had not stated anything which was not a fact.
Was it a fact that every member of the old firm of Overend and Gurney except Mr. Gibb drew out every shilling he had before the stoppage?—Very nearly. I never said that the directors sold their shares.
Did any one of the directors withdraw from any liability which they had entered into?—I did not say that they did; what I did say was that they withdrew their deposits.
Did not every one of them suffer heavily?
Dr. Kenealy objected to the question.
Cross-examination continued—Believed that every director except Mr. Gibb withdrew the whole of his money from the concern.
By the Solicitor-General (reading from a printed book)—You state here that Mr. Gibb held 800 shares, adding, “This gentleman is the only director who did not withdraw the whole of his money from the concern prior to the collapse.” Is that true? The witness appearing to hesitate, the Solicitor-General said—Did you say that Mr. Gibb was the only director who had not withdrawn the whole of his money?—I stated that Mr. Barclay held 1,000 shares.
Is the statement which I have read true?—In the way in which you put it—
Is that true?—Well, perhaps it is a strong way of putting it; but my attention was never called to it before.
The Lord Chief Justice (to witness)—The effect of what you said seems to be, that while Mr. Gibb had retained his interest in it every other director had got rid of his. Let me advise you not to trust yourself to publish anything more of that kind, because it can have but one interpretation. It is going a long way to give you credit for having meant anything else than what you appeared to mean. The greater the importance of the truth being known, the more careful you ought to have been in what you said.
Cross-examination continued—His report was called a “Report of the Defence Association.” (A printed document was here handed to the witness.) That was not intended for publication, but for the information of his friend Mr. Kampo. Did not send him a copy of it, but felt sure he saw it. Believed Mr. Kampo was a great debtor to Overend and Gurney. The document was printed at the expense of Mr. Kampo. Believed that Mr. Lopes ordered the printing; did not know whether that gentleman was another Spanish grandee. Never asked his friend what he wanted the thing for. Did not write that book for the express purpose of its being used in an action in the courts of Spain. Mr. Lopes, who was Kampo’s agent, attended to the printing. He (witness) never distributed one copy. He would swear that. This document was only an appendix to the report made to the Defence Association. Had not separated between the money dealing and bill booking business, and the illegitimate business of the old firm. The new firm did not continue the latter. Had made a calculation with regard to the business of the new company, but had not separated between the two kinds of business; would have been extremely difficult to do so. Could not tell whether or not the money dealing and bill trading business was sound on the 31st July, 1865.
The Lord Chief Justice said that had all along appeared to his mind a very material point.
Cross-examination continued –Was unable to say whether or not the money dealing and bill-broking business yielded a profit at the time. That might have been ascertained with great labour.
Is it not correct book-keeping to enter the interest that becomes due from time to time on a doubtful debt till the debt is written off?—Yes, until the debt is known to be bad or doubtful.
The Lord Chief Justice asked the witness whether, when something was receivable on a debt, the interest might not fairly be entered?
The witness thought it could not be treated as profit.
By the Solicitor-General—If a debtor become bankrupt interest would be charged in proving the debt. He did not charge interest on the debt which was bad or partially bad before bankruptcy. The effect of what was done in the present case was to make the old firm of Overend, Gurney, and Co. liable for interest on 4,000,000l. to the new company. Charging interest was wrong, because the debts were bad. The statement of the interest account was made out by the liquidators, but they took it from the books.
The Solicitor-General—Did you wish to convey to the jury the impression that the statement with respect to the 68,000l. of interest of which you spoke was published by the directors and not by the liquidators?—Certainly not.
The Lord Chief Justice—When you told me that that statement, showing that they had made a profit of 203,000l., was published to the shareholders, did you mean to convey the impression to my mind that it was done by the directors?—Certainly not.
The Lord Chief Justice—Then all I can say is that your language was singularly unfortunate—(applause)—for you did convey that impression to my mind.
Cross-examined by Mr. Mellish—Mr. Barclay held 1,000 shares, and paid all his calls—45,000l. being the amount. On the 1st of January Mr. Barclay deposited 90,000l. in the Old Bank, in two sums, without any security. Prior to the 2nd of May, 1866, the amount had been reduced to 70,456l., and he then paid in what made up exactly 71,000l. On the 2nd of May the sum of 71,000l. was transferred in the books to the account of Gurney’s Bank at Norwich. That was a private bank, and Mr. Barclay had shortly before become a partner in it. Therefore, it was a transfer of Mr. Barclay’s private account to another bank. That was what he (witness) meant by withdrawing the deposit. Gurneys withdrew exactly 71,000l. Between the 2nd and the 9th of May Gurney’s of Norwich withdrew 95,000l. At the stoppage there was a balance in their favour of 41,325l. There was 65,000l. standing in their names on the day when the 71,000l. was paid.
Cross-examined by Mr. Giffard—Had not taken the trouble to ascertain how the 200,000l. advanced to Cavan, Lubbock, and Co. was secured, but believed it was secured on West Indian estate. Every farthing of it had been paid so far as the united company was concerned. Every one of their bills under discount had been met in the regular way.
Re-examined by Dr. Kenealy—Had no knowledge of the debts of Mr. Barclay except from the books and sworn statements which he had seen. Asked Mr. Boyce, the secretary of the old firm and of the limited company, for the security books, and he replied that there were none.
Was it right to charge interest on 839,000l. due from a company which had been wound up years before?
The Solicitor-General objected to the question.
The Lord Chief Justice thought that general questions like that could not be put in the present case. The debt had been transferred, and interest was chargeable upon it, because otherwise the account to be settled at the end of three and a half years could not have been settled.
By the Lord Chief Justice—Had never known an instance like the present before.
A discussion here took place between Dr. Kenealy and the judge as to the admissibility of the deeds of inspection, &c., relating to debts to old firm. The Chief Justice held that the certificate of an attorney was not sufficient in such a case as that, but thought it would be best not to press the objection. The Solicitor-General said he would consult his client on the point.
The Solicitor-General—The witness said there were no balance-sheets; but here they are. (Mr. Boyes produced some documents.)
The Lord Chief Justice—It had a very nasty appearance when it was said that there were no balance-sheets.
Mr. Howell—I do not see that this is a balance-sheet at all. Oh, yes, there is a balance struck at the end. I applied for every document connected with the company, but these were not shown to me.
Mr. Ernest Robinson was recalled. He produced the proceedings in the first bankruptcy of C. J. Mare, dated 7th February, 1865; C. Garratry, dated 10th January, 1865.
Mr. Levine, secretary to the London Stock Exchange, produced the original application for the documents connected with Overend, Gurney, and Co., and the list of documents he received from the company in accordance with the requirements of the Stock Exchange.
Dr. Kenealy—Was there more than one deed accompanying the documents?
Witness—Only one.
The Lord Chief Justice—As a general rule, where one company transfers to another, is it expected that any deed of covenant between the company that sells its business and the company that buys it shall be produced?
Witness—Yes.
A Juryman—If there were three deeds, would you expect them all to be produced?
Witness—Yes.
The court was then adjourned, at a quarter to 4 o’clock, until a quarter past 10 this morning.
THE OVEREND, GURNEY, AND CO. PROSECUTION.
In the Court of Queen’ Bench, at Guildhall, yesterday, before Lord Chief Justice Cockburn and a special jury, the trial of John Henry Gurney, Henry Edmund Gurney, Robert Birkbeck, Henry Ford Barclay, Henry George Gordon, and William Rennie, the directors of Overend, Gurney and Co. (Limited), and who were charged with conspiracy to defraud the shareholders of the company, was commenced. The defendants, who surrendered to their bail, were accommodated with seats in the space between the front bench for the counsel and the Judge. The case appeared to excite considerable interest, but nothing like so much as was exhibited when the preliminary proceedings were taken before the Lord Mayor nearly a year ago. Nevertheless long before the hour fixed for the trial, twelve o’clock, many persons had assembled round the doors of the court, the place allotted to counsel was filled, and immediately after the doors were opened the court was full, but it was not crowed. Mr. Adam Thom, the prosecutor, occupied a seat amongst the junior counsel. The counsel for the prosecution were Dr. Kenealy, Q. C., Mr. Macrae Moir, and Mr. Dawson Yelverton. For Messrs. Gurney and Birkbeck—the Solicitor-General, Mr. Hawkins, Serjeant Ballantine, and Mr. J. C. Malten; for Mr. Barclay—Mr. Mellish, Serjeant Parry, and Mr. Montagu Williams; for Mr. Gordon—Sir John Karslake and Mr. Ledgard; for Mr. Rennie—Mr. Giffard, Q. C., Mr. Poland, and Mr. Jardyne.
Dr. Kenealy said he appeared for the prosecutor. The indictment charged the six defendants with conspiracy to induce others to become shareholders in a certain com-pany by publishing and circulating a prospectus containing false representations. Since this case was put into his hands on Friday afternoon he had endeavoured to discover whether there had been any similar case, and he found none like it but the South Sea scheme, which was the disgrace and the scandal of the beginning of the last century. The South Sea scheme originated in the sanguine dreams of the projector, and he believed everything was conducted on the most honest principles until persons came in who were always waiting for things of this description. But these defendants appear to have entered on this scheme with a cold-blooded determination to swindle the unfortunate shareholders. It was said when the case was before the Lord Mayor, that such of the defendants as were not actually present at the time the fraud was concocted ought not to be charged. But that not the law. In De Berenger’s case, Lord Ellenborough held that in order to find persons guilty of conspiracy it was not necessary to show them together, but all that was necessary was to show that they were actuated by the same wicked purpose, and that they combined to carry it out. The defendants John Henry Gurney and Henry Edmund Gurney were, he understood, cousins; Mr. Birkbeck and Mr. Barclay were also connected with them as relations; and the other two defendants, Mr. Gordon and Mr. Rennie, although not relatives, were closely connected with them in private and commercial matters. The old firm of Overend, Gurney, and Co. was established at the close of the last century; it had a wide reputation, was highly prosperous, and was conducted with great honour by the ancestors of the two first-named defendants. He believed that when the members of the old firm retired the concern was making a profit of 125,000l. a year. But when the new partners came in a different state of things seemed to have prevailed. They appeared to have entered into some of the most extraordinary speculations that could possibly be conceived. They made themselves partners in many things; they covered the seas with their ships, and ploughed the land with their iron roads. This was perfectly right and proper if they had done all this at their own expense; but when they heard that these proceedings entailed a loss of 500,000l. a year for five or six years, and that these wild and reckless speculations were not entered upon with their own money, but with the money deposited with them—amounting to five millions—their speculations assumed quite a different aspect. This was their position in 1865. The greater part of the five millions which had been lodged with them on deposit was at call within seven days. Their position was of the most ruinous kind. By the figures in their own books it appeared that the liabilities for which Overend, Gurney, and Co. were responsible a short period before the formation of the new company were 15,207,581l., and the only real assets which they had to meet these liabilities under the most favourable auspices were 12,075,000l., so that there was a clear deficiency of upwards of 3,000,000l. in the spring of 1865. Being in this condition, being liable to be called upon any day for the 5,000,000l. deposited with them, and having only 120,000l. actual cash in hand, their proper course was to call their creditors together, or to go through the Bankruptcy Court. He believed they were actuated by a strong desire to save the house, if possible, and probably they shrank from the ordeal of laying their accounts before their creditors. If they had done so there would not have been more than would have given the creditors sixpence or a shilling in the pound. Instead of doing this, they combined to defraud innocent persons. They appeared first to have contemplated a bargain by which they would have amalgamated with a company called the National Discount Company. That however did not come to anything, but there had been found a prospectus in the handwriting of Mr. Gordon, one of the defendants. This prospectus had corrections in it in the handwriting of one of the Messrs. Gurney. It stated that arrangements had been made for the transfer of the business of Overend, Gurney, and Co. on terms which could not fail to give satisfaction to the shareholders; that three of the present partners had agreed to become directors of the new company, thus securing the valuable connection which the firm had so long enjoyed. It also stated that there would be no promotion money paid either directly or indirectly, and that allusion might also be made to the advantages of the immediate enjoyment of so large and profitable a business. Now, there never was a more false statement, for the business, though large, was most unprofitable. In this document, as it was first written, all the existing liabilities were said to be “most amply and satisfactorily guaranteed;” but lest the guarantee should be held to include real and personal estate, there was substituted for that phrase, “under the guarantee of the vendors,” which simply implied a personal guarantee. While this conspiracy was being concocted, Daniel Gurney addressed a letter to his nephew, John Henry Gurney, who was the principal defendant, in which he said that he had done the right thing in negativing the proposal for continuing the Overend and Gurney business. The date of that letter was May 25, 1865. On the 24th of June, the uncle wrote to his nephew, that he was sincerely pleased that everything was in good train for forming a new company, that he supposed “no Baring could be obtained,” and that care should be taken that nothing dishonourable was done with regard to the marriage settlements of his family. It was a pity that he did not at the same time consider what might be dishonourable with respect to the public. In a third letter, dated the 4th of July, occurred these words: “I accede to your proposal of giving security, but you must bear in mind that in case of a real catastrophe all my family and myself would be in total destitution.” Did not that expression, “real catastrophe,” written by the uncle to his nephew, bring home to the latter a clear view of what was impending? Notwithstanding that, however, this defendant was still found acting in concert with the others. Having failed to induce the National Discount Company to entertain their proposals, the defendants set about establishing a company of their own, and in that way shifting their own liabilities to the shoulders of others. On the 12th of July they registered the Overend and Gurney Company provisionally as a limited company. They probably thought that by calling themselves a limited company they entirely altered their position; but the new company consisted at first of just the same persons as the old one, and the shareholders were so far merely mythical persons. By one of the article of association of the new company it was provided that John Henry Gurney and Robert Birkbeck should be managing directors at a salary of 5,000l., and that after a certain amount of dividend had been earned, they should have one-fifth of the profits in addition to their salary. On the 13th of July a prospectus was issued, of a limited liability company with a capital of 5,000,000l. in 100,000 shares of 50l. each, and an intimation was made that only 15l. per share would be called up. Then followed a list of the directors. The company was, it was stated, formed for the purpose of carrying into effect an arrangement which had been made for the purchase from Messrs. Overend, Gurney, and Co., of their long-standing business, which was to be transferred in consideration of the payment of 500,000l. for good-will, one-half in cash and the other in shares. When the parties were negotiating with the National Discount Company they did not dare to say anything about good-will, well knowing that they could not obtain a single farthing. Then there was to be no promotion money; and this distinction was a very important one. No time was lost. The business was to be handed over to the new company on August 1; and it was further stated that the vendors guaranteed the shareholders against any loss on the assets or liabilities transferred, that the members of the old firm retained a large pecuniary interest in the new concern, two of them—Henry Edmund Gurney and Robert Birkbeck—having undertaken to manage the business, and that “the directors would give their zealous attention to the cultivation of business of a first-class character only.” This last pledge they fulfilled by fraudulently using the money of the shareholders to sustain an utterly rotten business. The total number of shares allotted to the public was to be 83,334, the remainder 16,666 being reserved for the directors and distributed amongst them. In order to keep the supervision in the hands of these gentlemen, an arrangement was made by the 70th clause of the articles of association which secured to them a majority at the board meetings, so that if any independent directors should be elected they would have no power. There was transferred from the books of Overend, Gurney, and Co. a long series of items which were treated as absolute cash, but which belonged in fact to a rotten account. Those items amounted in the aggregate to 4,000,000l. The first item was 839,345l. 19s. for the Atlantic Royal Mail Steam Packet Company, in liquidation. That company was wound up in 1864, yet a million was there transferred to the new company. Another item was “T. S. Begbie 17,292l. 14s. 8d.” Mr. Begbie was what was called a blockade runner, and this transfer was about as valuable as the transfer of the ashes of cigar. The next entry was, “Leopold Bruzewitz, 54,382l. 19s. 3d.” That man’s position was well known to these defendants, and at the time of the suspension he was indebted to them to the amount of 135,000l. The next entry was, “W. Chapman, 17,243l.” He paid a little, his account having been reduced at the time of the stoppage to 14,854l. 11s. 4d. Then came “Carlisle, Parr, and Co., 26,294l.” They went into liquidation in November, 1864. Then came, “the Greek and Oriental Steam Company, 144,144l.” According to the evidence of Mr. Harding, that had been treated in the books of the old company as an irretrievable loss. It was a speculation entered into by the old company along with a Mr. Stephanos Xenos, and was a ruinous thing; and the directors knew perfectly well that no money was to be expected from it. The next entry was “East India and London Shipping Company, 406,264l.,” which was like the others treated as cash, though the company had been ordered to be wound up on the 3rd August, 1864. Then came “A. F. G. Guarantee, 27,028l.,” from which nothing had been received. Then came “F. and G. Gunaway, 190,977l.;” then followed “Halliday, Fox and Co., 64,628l.” But that firm had executed a deed of inspection on the 16th February, 1865. The next entry was 331,765l., as due from Thomas Howard, though he had been actually discharged by a deed, dated January, 1863, from every farthing of that debt. The next entry was “Charles Joyce, 78,728l.;” and of this sum there appeared to have been received near 40,000l. Then came, “John Jones, 22,353l.;” but instead of that sum having been since obtained from him, he had been allowed by the limited company to increase the debt to 31,200l. at the time of the stoppage. The next entry was “Kelson, Tritton, and Co., 291,391l.” They executed a deed of inspection on the 30th June, 1865, and at the time of the stoppage the debt had been decreased to 197,503l. Then there was an entry, “J. E. C. Koch, 243,069l.,” for which there was no justification whatever, for Mr. Koch was a mere servant of the defendants, and claimed to be a creditor instead of a debtor. The next entry was “Levant and Black Sea Steam Company, 38,211l.” The company was in liquidation, and the debt had been slightly lowered. Then came a large item, “David Leopold Lewis, 341,559l.,” of which at the time of the stoppage only a little more than 7,000l. had been paid. This was followed by a still larger item, “Millwall Iron Works and nominees, 510,368l.,” which had increased at the time of the stoppage to 566,489l., and the securities which the old firm held had actually been hypothecated before the transfer. Then came W. M’Cormack, 13,174l., which stood at the same amount at the time of the stoppage; Manuel and Co., 83,093l., the firm having been bankrupt in 1863. Then came Mauritius Mortgage, 25,284l., which had slightly increased at the time of the stoppage; Old Ebbw Vale Company shares, 11,112l., the loss on which at the time of the stoppage had increased to 48,705l. Joseph Rigby, 20,500l.; C. Reynolds, 15,000l.; Peto and Betts, “Azad,” 14,000l., which was all moonshine, there being no such claim against that firm; Sichel, Alexander and Co., 51,921l., since increased to 107,393l.; and Von Dadelszen and North, 2,845l., which had increased to 33,690l. The total amount was 4,003,016l., and the new company seemed to have expended 615,000l. extra in order to keep up those rotten speculations which the defendants had entered into. The defendants appeared to have made provision of every kind to secure themselves. He had already called attention to the fact that there was a deed mentioned in the prospectus which was issued by the defendants.
The Lord Chief Justice—As I understand, part of your case is that they gave in as assets a list of debts which were in point of fact absolutely worthless; and if these were held out to the public as assets when it was proposed to the public to take shares I quite see the relevancy of this statement. But what I want to see is, how far that was brought to the knowledge of the shareholders so as to operate as an inducement to take shares.
Dr. Kenealy—In this way: that the old company transferred to the new company 15,000,000l. of assets, of which 4,000,000l. are worthless.
The Lord Chief Justice—Just so; but where does it appear that the public were told that there was so much liability and 15,000,000l. assets?
Dr. Kenealy said it would appear by the first deed that they gave the now company all the assets. This was declared by the deed that could be seen and inspected by the shareholders, and if there had been only one deed, that would be in favour of the defendants; but it would be found that on the same they made a secret, private, and fraudulent deed, which was discovered merely by accident, and it was never communicated in any way to the public, or to those who became shareholders. By the first deed it was stated that 500,000l. was the consideration paid for the goodwill of the business; but it was provided that that amount should not be at once paid over, but should be kept in hand as a material guarantee for the complete performance of the covenants of the defendants. The second deed, which bore the same date as the first, was discovered by accident, being designed to conceal important matters from every human being except the defendants. It referred to what were called “exceptional accounts,” making up the 4,000,000l. odd of which he had previously spoken. It was therein provided that the defendants should have from the 31st of July, 1865, till the 31st December, 1868, to get rid of the liabilities in those excepted accounts. Thus, by a secret deed, they obtained nearly three years and a half, and he maintained that that was a fraud. There was nothing which gave the slightest inkling of the matter in the first deed. Further, for the purpose of concealing from the general public the fact that there were rotten securities to the amount of 4,000,000l., it was provided by clause No. 3 that all the books, accounts, and papers relating to the business transacted by Overend, Gurney, and Co., previous to the 31st July, should remain in the custody and under the control of the old directors. They had already got six of their own body on the board, but they seemed to have thought that the shareholders might elect five independent directors, and therefore care was taken that in that event the new directors should be kept in ignorance. Whether that was honest or not was another question for the jury; to him it appeared to bear only one aspect. In the first deed there was only a general exception; but in the next clause of the second deed they set out fully what they meant to except; his inference being that the words in the first deed were used solely for the purpose of delusion. The 11th clause was one of the most extraordinary clauses that he ever read. It provided that all sums of money which the directors might receive on that suspense account should be placed to the credit to the defendants; that is, they were to be placed to their credit whether the amounts were paid over to the limited company or not.
Sir J. Karslake said that was not the case.
Dr. Kenealy said the jury as commercial men would be better judges of what was intended than himself, but that was his inference. Clause 13 was a most singular clause. It spoke of “sum of money which the said limited company may from time to time lend or advance to Overend, Gurney, and Co., for the purpose of enabling them to wind up and close such excepted accounts.” Was there anything in the prospectus about the new company lending money for such a purpose? If it had been implied there that Overend and Co. were in such a position that they could not realise their securities, would the public have advanced a single farthing? This was a provision to enable them to do what they had previously covenanted to do, and it was thereby admitted that they were at the time insolvent. This deed, which was no doubt drawn up by a very astute person, contained a further provision which he thought would satisfy the jury of the guilt of the defendants. Secrecy was almost always a badge of guilt. It seemed to have occurred to the farmer of that deed that there was a danger of its being brought before a court of law or of equity, and the whole of the transactions exposed to the public. To prevent this it was provided by clause 20 that if any dispute should arise it should—the word was not “may,” but “shall”—be referred to arbitration. The parties to that deed and their successors and assigns were thus precluded from ever bringing those matters before a court of law, to which he might add that if a dispute occurred, the two arbitrators were sure to be friends of the parties, and in case of a difference between them they would appoint a third friend.
The Chief Justice said the terms of the schedule referred to by the learned counsel seemed to be large enough to embrace the whole of the debts.
Dr. Kenealy—Yes. The contention of the learned counsel on the other side would perhaps be that they were also excepted in the first deed; but the answer to that was that the description in the second deed was so ample as to leave no room for doubt, while that in the first was vague and uncertain. What was done blinded the eyes of the shareholders, and left the directors three years and a half, during which something might possibly turn up to prevent their criminality from being discovered. The schedule referred to the Millwall Ironworks Company, and other companies, by name. Provision was made that no general meeting of the shareholders should be held until 10 months after the formation of the company. The defendants knew perfectly well that they could not face a general meeting, and the whole of their proceedings being tainted with fraud, and hence they took care that no shareholder should ascertain anything earlier than they could possibly help. His learned friends would no doubt contend that the second deed was perfectly honest. Why, then, was it kept secret; and why was it that the letter sent by the directors to the Committee of the Stock Exchange about appointing a settling day was accompanied only with a copy of the first deed? Even in the minutes of their own proceedings the directors were silent about the existence of the second deed. So anxious, indeed, were they to conceal what was going on, that on several occasions the secretary (Mr. Slater) was requested to withdraw.
The Chief Justice said the first deed provided for the transfer to the new company of all the assets, securities, and debts of the old firm of Overend, Gurney and Co., with the exception of such of the outstanding debts as the new company should decline to adopt; and the second deed had reference, as he understood, entirely to the debts so to be excepted. The schedule enumerated those debts and the provisions of the second deed had reference from beginning to end to what was to be done as between the two companies in regard to those excepted debts. The new company had no interest in anything that related to those debts, except so far as it was desirable that they should be wound up and liquidated or got rid of, so that they would not stand in the way of the respectability of the new company. The whole of the 4,000,000l. was, he understood, comprised in the schedule.
Dr. Kenealy—Yes.
The Chief Justice continued—They were not held out as available assets, but were included in a distinct account as not having passed to the company, but remaining still with the defendants.
Dr. Kenealy said he contended that that was a fraud, because the debts were transferred to the new company as part of the assets.
The Chief Justice—That is another matter.
Dr. Kenealy said what occurred showed that the defendants well knew that they were in an insolvent state. On the 2nd of August one of them, Henry Ford Barclay, made a third deed, which was likewise kept secret, and by which it was provided that in case either of the defendants should become bankrupt during the three years and a half that arrangement was not to continue. If Mr. Barclay knew of the insolvent condition of the parties, that was an element of guilt. Well, after the great flourish of trumpets about the company there was a great demand for shares, and in a short time they rose to 9 premium, at which price many persons, no doubt, realised large profits. Among those who became shareholders was Dr. Thom, the prosecutor in this case. Dr. Thom was a doctor of law and a member of the Canadian bar. Having acquired a fortune in Canada, he came to this country, and being dazzled by the Overend and Gurney prospectus, he obtained some shares. Feeling very strongly on this subject, he wrote a letter to an eminent person, and he wished now to express his regret if he said anything in it that unjustly wounded the feelings of any one. Having been deluded into purchasing a number of shares, he paid, like others, his calls, a process in which a great deal of money had been swallowed up. To show the entirely hollow nature of the transactions of the new company, he might observe that in nine months they discounted bills to the amount of 56,000,000l., and that upon that discount there was a pretended profit of 220,000l., which was, in fact, made out of interest on the 4,000,000l. of bad debts. The net profit from other sources was only 4,000l.; so that for 4,000l. the new company paid 3,120,000l. The defendants kept up the delusion to the last moment. One of the witnesses would state that a director told him that there was about to be a dividend declared of 7 per cent. A rumour got abroad that the Messrs. Gurney were beginning to sell their private estates; that was immediately followed by a run upon this wretched company, and the company was smashed; otherwise the directors would no doubt have carried out their promise of a dividend. The stoppage took place on the 10th of May, 1866. When it occurred the cash-book of the company was found to be mutilated; figures of great magnitude were erased and others substituted for them. One of the defendants, Mr. Barclay, was found to have at the time of the stoppage, a deposit of 10l. 4s. 4d., having on the 2nd of May, eight days before the crash, withdrawn upwards of 70,000l. Mr. Gordon, another defendant, had no deposit when the bank suspended; and Mr. Rennie, whose own banking firm had an unsecured deposit of 56,000l. with the old firm of Overend and Gurney, withdrew it a few days after the new company commenced business. Had it not been for the energy and perseverance of Dr. Thom and one or two other gentlemen, the defendants would have escaped scot free; but owning to those qualities which distinguished him as a Scotchman, and the possession of which had secured for his countrymen the highest posts in the field and in the law, the case was now brought before a jury. On the 23rd of February, 1866, Mr. Birkbeck, writing in reply to a letter from a large shareholder, named Peek, said, “No one can have been more annoyed at the rumours relative to the company than I have been,” adding, “I can assure you the company has not lost anything,” and that the business was going on satisfactorily. On the 14th of April he wrote in a similar manner. Now this was the case which he (Dr. Kenealy) was about to present to the jury, and he thought that if he proved it there could be no reasonable doubt in the mind of any one that a clear case of fraud and conspiracy had been made out. He knew that the bar had never been better represented than it was on the other side; he knew that he had to contend against great ability, eloquence, and legal knowledge; but his case was so very simple, so very plain, so exceedingly clear, that to his mind the whole of that 4,000,000l. which he had mentioned, represented an entire, absolute, and positive fraud, and so far as he could see there could really be no doubt about the matter. A case of such great importance to the commercial community had, perhaps, never before in our time, been presented to the public. Here was more than 3,000,000 of money sacrificed all at once, not legitimately sacrificed, not even lost in speculation, but absolutely juggled out of the pockets of the shareholders. If the defendants were able to prove their innocence no one would rejoice more than himself. He should be glad to see the honour of British merchants vindicated. He should be glad to see a transaction, which at present appeared in the blackest colours, freed from suspicion. He should be glad for the defendants’ own sake that they should be able to leave the court with honour. He and his learned friends when they had completed their task of laying the case clearly before the court would have performed their duty, but on the jury a solemn responsibility rested. The whole merchant world were looking for their verdict. It was possible that they might have been on intimate terms with the defendants, for aught he knew might have sat at their tables; but he trusted that they would nevertheless perform their duty. The great spirit of mercantile honour had for many years been declining in this country, but he trusted that their verdict would be such as would vindicate it, and one which would meet with the approbation of the whole country. It was very seldom that so grand an opportunity arose of vindicating public justice, and he trusted that they would be equal to the task.
At the conclusion of the learned counsel’s address the court adjourned till ten minutes past ten this morning.
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