THE EARL OF DONOUGHMORE
rose to call the attention of the House to the Special Report and Evidence upon the West Hartlepool Harbour and Railway Bill; and to move—1. That the Report and Evidence be referred to Her Majesty's Attorney General, with Directions to inquire into the alleged illegal Conduct of the late Directors and Auditors of the Company, and to institute a Prosecution against such Persons as, in his Opinion, can he convicted of illegal or fraudulent Conduct:2. That a Select Committee be appointed to inquire and report as to what legislative Measures are desirable for the Purpose of restraining Directors of Railway Companies from exceeding the Limits of the borrowing Powers fixed by their Act of Parliament, and from expending the Funds of Companies for Purposes foreign to their Undertakings and unauthorized by the Legislature.It was not often their Lordships were troubled with a discussion of matters connected with private Bills, and he regretted very much that it had fallen to his lot to be obliged to bring a subject of this kind under their consideration; but, as Chairman of the Committee to which the Bill had been referred, he felt he should not be doing his duty if he did not call 1295 the attention of the House to some of the facts disclosed by the evidence taken before the Select Committee. The West Hartlepool Railway Company was formed in 1852, by the amalgamation of two small companies—the Hartlepool Dock Company and the Stockton and Hartlepool Company; and these two companies were afterwards amalgamated with the Clarence Railway Company. The amount of the Company's capital was originally £1,500,000 in round numbers, the Clarence Company holding preference shares in the amalgamated company. The Company appeared to have been badly managed from the beginning; and in the years 1857 and 1861 the Company again came before Parliament and obtained further powers. The capital was increased to £2,100,000, and the extreme limit of the borrowing powers was £700,000, or one-third of the total capital. He had first to bring under the notice of the House the conduct of the Directors in exceeding their borrowing powers. The amount of capital actually raised was not one-half of the total share capital, and, instead of the limit of the borrowing powers being adhered to, the enormous sum of £2,700,000 had been borrowed by the Company, partly upon bonds and partly upon debenture stock. Now, even supposing that they had power to borrow to the extent of one third of their authorized capital, they had exceeded that power to an enormous amount. But, looking at their Act, it was doubtful whether even the borrowing power conferred upon them could be legally exercised, for they were restricted from exercising these powers at all until one-half of their share capital was subscribed and paid up; and as that was never done, the Company had no legal power to borrow at all. However, £350,000 was the full amount of the power, and yet they borrowed £2,700,000. He would pass over the other instances of mismanagement detailed in the Report, for though those instances were of a startling, yet they were not of a criminal nature. But there was one matter which he thought of a most serious nature. It appeared in evidence that from 1853 to 1861 the Directors of the Company never presented the shareholders with a true statement of their affairs, and that during this period the annual accounts, which were printed and circulated under the authority of the Board, concealed and falsified the true 1296 state of their affairs. Setting aside the public injury inflicted, he apprehended that such conduct as this was a breach of the criminal law, and he had a strong opinion, that as this matter had been brought under the notice of the House, they should take care, that if the parties were guilty, punishment should be inflicted upon them. It appeared that as early as 1858 one shareholder had misgivings as to the state of the Company, and commenced proceedings with a view to compel the Directors to cease the borrowing of money in excess of their powers. For a long time he failed in producing any effect; but in 1859 a Committee of investigation was appointed, and Mr. Sturge was appointed to conduct the inquiry. But he (the Earl of Donoughmore) was astonished to find that he failed to discover the facts, although he had an opportunity of examining the books. For some time afterwards no steps were taken; but afterwards some of the larger shareholders became alarmed, being convinced that the affairs of the Company were in a very alarming condition, filed a Bill in Chancery, obtained the appointment of a receiver, displaced the Directors, and appointed another Board; and it was this second Board that had come to Parliament for the reconstruction of the Company with the Bill referred to the Committee over which he had presided. He had been asked why the Committee did not state in the Report their reasons for throwing out the Bill. Now he thought the facts stated were themselves sufficient reasons for the decision come to. In the first place, the Bill proposed, among other things, to raise a million of money for the purpose of paying off the old shareholders and other debts which were primary charges upon the concern. That Bill was opposed by creditors, and on that opposition the Bill failed. He thought that the case of the creditors was unanswerable, and that the Committee were clearly right in throwing out the Bill. When, however, the Committee re-assembled after Whitsuntide, they were informed by the opponents of the Bill that they had come to an agreement with the promoters, and were anxious now that with certain modifications the Bill should pass. Practically then the Bill was unopposed; but even then he thought that it should not be allowed to pass. The old Clarence shareholders had stood as five to three in the governing body, and had used their majority by keeping in office for eight years 1297 the men who had brought the Company to their present position. Now, according to the arrangement come to, these were the only parties whose rights were to be completely guarded, and who were to escape scot-free. They were to receive their full demand, they were to be paid off in full, and for this purpose this million of money was to be found. On another ground he felt that the Bill ought not to pass, for in his opinion a Committee of five Peers had no right to judge so important a question as this without laying the matter before the House. This had ceased to be a question of re-arrangement of capital. This was a case in which fraud and illegality were imputed, it was a case for which there existed no precedent; and he had felt, that if the Bill passed at all, it should pass on public grounds, and not as the act of a Committee of five Peers appointed to treat a mere private question. He quite admitted, that if the Bill did not pass, great loss, and even ruin, would follow to innocent parties. But, on the other hand, it would be unwise to allow the directors of public companies who had been guilty of gross mismanagement to feel that they had nothing to do but come before Parliament and make an appeal ad misericordiam in order to undo all the fraudulent Acts they had done in the past, and thus encourage others to pursue the same course. The creditors of the Company were alone worthy of relief. He had no sympathy with the shareholders, for it was their business to have looked after their own concerns; and if they had experienced a heavy loss, it was their own fault. The creditors stood in a different position. They had no power to interfere in the affairs of the Company, and might have a case with which to come before Parliament. But he entreated their Lordships not even to give relief to the creditors until the persons who were responsible for this mismanagement were brought to punishment. When that was done, he should not object to consider what further steps should be taken, and therefore he should not offer any opposition to the Motion of which his noble and learned Friend (Lord Chelmsford) had given notice. He had no personal interest in, or acquaintance with, this subject, beyond what had come to his knowledge during the progress of the inquiry, but he brought it forward in accordance with what he felt to be a public duty. Another noble Lord (the Earl of Airlie) proposed, that if a Committee were appointed, it should inquire 1298 into the means of preventing the use of borrowing powers before the prescribed portions of capital had been raised. He thought that addition to the terms of his own proposition would be useful, and he should assent to it. With respect to the evidence before the Committee, he admitted that it was upon one side only; but that could not be avoided. The question which the Committee had to consider was, whether the Bill should pass or not, and the evidence inculpating the Directors came out in the course of the inquiry. They felt that it was right that the late chairman of the Company, Mr. Ward Jackson, should have an opportunity of defending himself by offering an explanation, and therefore he (the Earl of Donoughmore) stated publicly that it was their intention to report the facts to the House; and when Mr. Ward Jackson applied by letter, he was informed, that if he would attend the Committee at its next meeting, they would hear any statement he might desire to make. Mr. Ward Jackson did attend, and proposed that the Committee should hear evidence on his behalf; but they felt they could not do that, as they had no powers to act in the nature of a grand jury to try Mr. Ward Jackson's conduct. A noble Lord had given notice of a Motion to the effect that Mr. Ward Jackson be heard upon oath before the Committee; but even if that Motion could be made, it was doubtful what object would be gained by it. Mr. Ward Jackson presented a Petition, stating that he was not guilty: but if there was no ground for the charges, the Attorney General would not prosecute him; and even if he were prosecuted, he would have the benefit of a trial by a jury. He begged it to be understood that he did not desire that any prosecution should be instituted; but very grave charges having been made, he thought it only right that they should be inquired into. If those charges were proved, he wished the guilty parties to be punished, and he thought their Lordships would agree with him that they ought to be punished. He should, in the first instance, move the first Resolution of which he had given notice; and if that should be agreed to by the House, he would then propose the second Resolution. The noble Earl concluded by moving—That the Special Report and Evidence upon the West Hartlepool Harbour and Railway Bill be referred to Her Majesty's Attorney General, with Directions to inquire into the alleged illegal Conduct of the late Directors and Auditors of the Company, and to institute a Prosecution against 1299 such Persons as, in his Opinion, can be convicted of illegal or fraudulent Conduct.
THE EARL OF AIRLIE
said, that as a Member of the Committee, he felt bound to explain that he bad not been able to agree with the majority in their decision to reject the Bill, but he had no hesitation in endorsing the remainder of the Report. The statements in the Report as to the previous history of the West Hartlepool Railway Company gave, he believed, a fair account of the previous career of the Company, and the statements as to the illegal conduct of the Directors were fully borne out by the evidence. He therefore fully concurred in the suggestion embodied in the Motion. He should wish, however, to give his reasons for thinking that a Bill should have been allowed to pass. He felt, that under the peculiar circumstances, and all parties interested being agreed, the arrangement that was proposed was as fair a compromise as could be devised to meet the interests alike of the shareholders, preference shareholders, and bondholders, who were all interested in avoiding the enormous expenses that would be consequent upon litigation. He admitted that it might establish a bad precedent; but he could not forget that a large number of unfortunate persons had invested their money in the undertaking, both shareholders and bondholders, who were quite innocent of participation in any illegality or mismanagement. His noble Friend said that the shareholders must bear the consequences of allowing such Directors to continue in office; but it must be remembered that the shareholders were kept in ignorance of the real state of affairs. The present Board of Directors represented the ill-treated shareholders and bondholders, and they ought not to suffer for the faults of their predecessors; and their Lordships should remember that to the poorer shareholders half a loaf was better than no bread. He therefore thought the Bill should be allowed to pass.
THE LORD CHANCELLOR
My Lords, I wish to explain to your Lordships the course which I think Her Majesty's Government ought to adopt, and which, on my advice, they are prepared to adopt, in this case. I must, however, speak with some reserve on this matter, because I know not whether in its civil aspect it may not possibly come before me in another place. I shall, therefore, speak only of the criminal aspect of the case, and entirely on 1300 the hypothesis that the statements in this Report are founded in fact. If these statements are so founded, I think I am warranted in saying that there is grave ground for believing that a very great public fraud and an indictable offence of a most serious character has been committed. Under the circumstances, whore there is an offence, which in its consequences are so important to the community, I hold it to be the duty of the Government to make an immediate inquiry into the circumstances; and if it finds reason to believe that an indictment will lie, and can be sustained, to take the duty of prosecuting on itself without any delay or direction. The Government, therefore, will immediately direct the solicitors of the Treasury to make the most full investigation into this subject, and to lay all the papers before the Attorney General, with directions to examine whether an indictable offence has been committed, and, if so, to proceed at once against the offenders. It is scarcely possible, having regard to the great number of public companies and the unfortunately imperfect state of the law, which provides no effectual audit, and no means for complete publicity with any security of having a truthful report—it is scarcely possible under these circumstances to imagine any case that is of more importance to the community than the present. I have taken the liberty of addressing you before the noble Baron (Lord Ravensworth) who has an Amendment on the paper, and who rose with me, because I must be permitted to say, that notwithstanding the Amendment of the noble Baron, the Government will persevere in the course I have indicated; and therefore I would submit to the noble Baron whether it would be of any utility to persevere with the Amendment of which he has given notice. It would hardly be right or fitting that any gentleman who might by possibility be implicated in criminal proceedings should be called on or even allowed to give testimony touching his share in these transactions. I cannot, however, do more than suggest that for the wise consideration of the noble Baron. With regard to the civil aspect of the case, I think I may venture to say that you may proceed to deal with it without in any manner affecting its criminal aspect. Its criminal aspect, I think, may not be at all compromised, or the power of 1301 prosecution affected by discreet measures being adopted with a view to ascertain the best mode of dealing with the civil rights and property of the parties. My Lords, I abstain from saying more than to give your Lordships a pledge that this matter shall be investigated by the Government without any delay whatever.
§ LORD RAVENSWORTH
said, that after the statement of the noble and learned Lord on the Woolsack he would not venture to press his Amendment; but hoped he might be allowed, on the part of a gentleman whose character and conduct were very much implicated in these transactions, to lay on their Lordships' table a Petition from Mr. Ralph Ward Jackson, and briefly to call attention to some of the statements it contained. He was not going to dwell in any manner whatever on the transactions of these amalgamated companies. That House was certainly not the arena in which to enter into matters of a very extensive and complicated character spread over a great many years, and made the subject of regulation or rather of no regulation by divers Acts of Parliament. But when it was said by the noble Earl (the Earl of Donoughmore) who commenced this discussion, that he was forming, as it were, a grand jury for the consideration of this subject, he must be allowed to say that this was just what had been already done by the noble Viscount and the Committee. Mr. Jackson complained in his Petition that the Committee's Report contained ex parte statements seriously affecting his conduct and character; that he had not been present when the witnesses were examined, and hence arose his correspondence with the Chairman, printed in the appendix to the Report; that when he had come to town, he appeared before the Committee and tendered himself for examination, but was refused; that many of the matters in the Report had been misrepresented, and others not fully examined; that he was no party to any false accounts of the Companies' affairs; that these were regularly examined and certified by auditors of unimpeach able integrity; that he had always been ready, and was now anxious, to give the fullest information relative to his conduct in connection with these transactions; and he prayed to be allowed to give all neccessary explanations. Such was the prayer of this Petition. It was perfectly true that the transactions of these Companies appeared, on evidence of ex parte witnesses, to bear a very suspicious character, 1302 He did not present himself as the apologist or defender of Mr. Jackson, but, on every principle of justice, their Lordships were bound to hear both sides, and he laid the Petition on their table in the confidence that its appeal to their Lordships' sense of justice would not be made in vain.
THE EARL OF DONOUGHMORE
said, that after the discussion which had taken place, and especially after what had fallen from the noble and learned Lord on the Woolsack, he should not press his first Resolution. He should, however, move, adopting the Amendment of the noble Earl opposite, the second—That a Select Committee be appointed to inquire and report as to what legislative Measures are desirable for the Purpose of restraining Directors of Railway Companies from exceeding the Limits of the borrowing Powers fixed by their Act of Parliament; from evading those Provisions of their Act of Parliament which require that a certain Portion of their authorized Capital shall be subscribed and paid up before their borrowing Powers can come into operation, and from expending the Funds of Companies for Purposes foreign to their Undertakings and unauthorized by the Legislature.
§ LORD OVERSTONE
hoped there would be no misunderstanding as to the nature of the duties which the Committee, if appointed, would he called upon to discharge. It was, he contended, most important for the interests of the railway companies themselves as borrowers, as well as for the interests of industrious and careful persons scattered widely all over the country, that some effectual means should be taken for giving positive security as to the validity of the bonds which were issued.
§ LORD STANLEY OF ADDERLEY
thought the Resolution would fully meet the view of his noble Friend if the following words were added to it:—"And also to inquire into what securities can be given to holders of debentures as to the validity and legality of the issue of such bonds."
§ Motion (by leave of the House) withdrawn.
Then it was moved,
That a Select Committee be appointed to inquire and report as to what Legislative Measures are desirable for the Purpose of restraining Directors of Railway Companies from exceeding the Limits of the borrowing Powers fixed by their Act of Parliament, from evading those Provisions of their Act of Parliament which require that a certain Portion of their authorized Capital shall be subscribed and paid up before their borrowing Powers can come into operation, and from expending the Funds of Companies for Purposes foreign to their Undertakings and unauthorized by the Legislature; and also to inquire what Securities
can be given to the Holders of Debentures as to the Validity and Legality of the Issue of such Bonds; agreed to: (The Viscount Hutchinson.)
§ The Lords following were named of the Committee; the Committee to meet on Friday next, at Two o'clock, and to appoint their own Chairman:—
|Ld. President.||L. Redesdale.|
|D. Devonshire.||L. Portman.|
|Ld. Steward.||L. Stanley of Adderley.|
|E. Airlie.||L. Dartrey.|
|E. Macclesfield.||L. Overstone.|
|E. Powis.||L. Chelmsford.|
|V. Hutchinson.||L. Taunton.|
§ LORD CHELMSFORD
said, that their Lordships having agreed to the appointment of a Select Committee, he now rose to move the Resolution of which he had given notice. The capital of the company, under three different Acts of Parliament, amounted to £2,100,000, and there was power to borrow, commencing when one half the share capital had been paid up, to the extent of one third of the sum so paid up. Even if the whole share capital had been paid up, the utmost they were empowered to borrow was £350,000. Their Lordships, however, had heard that they had, in fact, borrowed to the extent of £2,700,000. The bonds issued to the amount of the borrowing powers would be valid, and they only became invalid when that amount was exceeded; and this being so, it was impossible for any person having bonds to ascertain whether they were valid or not. Proceedings had been instituted in Chancery to establish the validity of some of the bonds, and the suit was suspended, in hopes that the Legislature would interfere and give some relief to innocent persons who had taken the bonds without the means of ascertaining whether the borrowing powers of the Company had been exceeded or not. It was perfectly clear that an immense amount of litigation would be necessary in order to determine the rights of the different parties; and under these circumstances the Bill was introduced, the object of which was to convert the debentures and bonds into paid-up consolidated stock of the Company, and to enable the bondholders to obtain arrears of interest up to the 30th of the present month at 3 per cent. But, unfortunately, the preference and ordinary shareholders opposed the Bill, and that opposition stimulated the vigilance of the Committee and induced an inquiry into the transaction, which led to an unfavourable Report of the Bill. The ordinary and 1304 preference shareholders were dismayed at the result of their opposition, and the moment that they saw the probability of the Bill being lost they withdrew that opposition. It was most important that this or a similar Bill should pass without delay, if their Lordships desired to give any relief to the bondholders, many of whom were in a very humble position in life, and had embarked their all in the investment. There was every probability that the concern would be a most flourishing one; for in spite of these discouraging circumstances the gross weekly revenue was £4,000. Unless a Bill were passed at once to give the requisite relief, the bondholders, deprived of their dividends, would be obliged to part with their securities at a great sacrifice, and then the Bill, which their Lordships must ultimately pass, would merely benefit the parties who profited by the unfortunate transfer. He had so drawn the instruction to the Committee as to exclude from any benefit persons implicated in the fraud, and he trusted their Lordships would give their assent to the Motion. The noble and learned Lord concluded by moving—That the West Hartlepool Harbour and Railway Bill, together with the Evidence taken respecting it, be referred to the same Committee, with Instructions to consider and report whether the said Bill might be allowed to proceed, with the view Of affording Relief to the Bondholders and Shareholders not implicated in the illegal Proceedings brought under the Notice of the House, without exempting those Persons who may have been Parties to those Proceedings from any Responsibility they may thereby have incurred.Petition for Opportunity of giving further Explanation respecting, and to be heard by counsel; of Ralph Ward Jackson, of Greatham Hall, Esquire; read, and Ordered to lie on the Table.
§ EARL GRANVILLE
was understood to say, that proceedings in Chancery could only inflict great hardship upon many innocent persons, and waste a large and valuable property. He recommended that the Bill should be referred to the Committee about to be appointed, and they could say whether in their opinion it should be afterwards referred as an unopposed Bill to the Chairman of Committees or to a Select Committee.
§ LORD REDESDALE
hoped the Committee would suggest some amendment of the law and practice, so as to prevent a recurrence of such a transaction in future. He objected to the Bill being referred to him, and thought it better that the same 1305 Committee should report whether it should be allowed to pass "with or without Amend merits." It was an exceptional case, and would not afford any precedent, because this Bill would he passed expressly to relieve innocent persons from a difficulty in which they had been placed by transactions of a very peculiar character.
The Motion was then amended; and agreed to, as follows:—
That the West Hartlepool Harbour and Railway Bill, together with the Evidence taken re specting it, be referred to the same Committee with Instructions to consider and report whether the said Bill might be allowed to proceed with or without Alteration, with the view of affording Relief to the Bondholders and Shareholders not implicated in the illegal Proceedings brought under the Notice of the House, without exempting those Persons who may have been Parties to those Proceedings from any Responsibility they may thereby have incurred.