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Title : Jubilee Cotton Mills Ltd, Re
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*958 Official Receiver and Liquidator of Jubilee Cotton Mills, Limited

Appellant; v Lewis Respondent.
House of Lords
9 May 1924

[1924] A.C. 958

Earl of Birkenhead , Viscount Finlay , Lord Dunedin , Lord Sumner , and Lord Carson.
1924 May 9.
Company—Winding Up—Misfeasance Summons—Promoter—Secret Profits—Shares and
Debentures—Allotment before filing Statement in lieu of Prospectus—Certificate of
Incorporation—Conclusiveness as to Date— Companies (Consolidation) Act, 1908 (8 Edw. 7, c. 69) ,
ss. 15, 16, 17, 82, sub—s. 1 .
The respondent, as the Court found on the facts, was a promoter of a company formed for the
purchase of a cotton mill and the carrying on of the business of cotton spinners. The
memorandum and articles of association of the company were accepted by the Registrar of Joint
Stock Companies on January 6, 1920, and the certificate of incorporation was dated on that day,
but apparently it was not in fact signed by the registrar till January 8. On January 6 the company,
before filing any statement in lieu of prospectus as required by s. 82, sub-s. 1, of the Companies
(Consolidation) Act, 1908 , allotted a large number of fully paid shares and debentures to the
vendor as the ostensible consideration for the purchase, but really to provide for promotion
profits. The greater part of these shares and debentures was transferred to the respondent, who
obtained a considerable sum by realizing them, though the shares were in fact worthless. The
company having been compulsorily wound up, the official receiver and liquidator issued a
misfeasance summons against the respondent to render him liable for certain secret profits
alleged to have been made by him as promoter. The respondent objected that there had been no
valid issue or allotment of the shares and debentures alleged to constitute the profit:-
(1.) that the certificate of incorporation was conclusive as to the date on which the company was
incorporated, and that the words "from the date of incorporation" in s. 16, sub-s. 2 , of the Act of
1908, which provided that the company from the date of incorporation mentioned in the certificate
was a body corporate capable of exercising all the functions of an incorporated company,
included any portion of the day on which the company was incorporated and did not mean "from
the commencement of the next day"; consequently that the allotment of shares and debentures
was not void on the ground that it was made before the company came into existence; (2.) (Lord
Sumner expressing no concluded opinion on the point) that assuming that the allotment was void
under s. 82, sub-s. 1, as having been made before *959 a statement in lieu of prospectus was
filed, the respondent, having been put by the company in control of something out of which he
made a profit, was bound to account to the company for that profit.
(by Lord Sumner; Lord Dunedin expressing the contrary opinion), that an allotment of shares and
debentures made before filing a statement in lieu of prospectus as required by s. 82, sub-s. 1, is not
wholly void.
Dicta of Warrington J. and Swinfen Eady L.J. in In re Blair Open Hearth Furnace Co. [1914] 1 Ch
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390, 399, 407 discussed .

Observations of Lord Sumner as to the practice of the Registrar of Joint Stock Companies, in
cases where everything is in order, of antedating the incorporation of a company to the date of
the application for registration.
Decision of the Court of Appeal [1923] 1 Ch. 1reversed .
APPEAL from an order of the Court of Appeal 1 reversing an order of Astbury J. 2 on a misfeasance
summons issued by the appellant, the official receiver and liquidator of the Jubilee Cotton Mills, Ld.,
against the respondent, Tom Lewis, under s. 215 of the Companies (Consolidation) Act, 1908 .
The company was incorporated on January 6, 1920, and an order for the compulsory winding up of
the company was made on March 15, 1921.
The summons claimed a declaration that the respondent was a promoter of the company and
accountable to the appellant for the secret profit received by him on the purchase and resale of the
Jubilee Cotton Mills, an account of such profit and payment by the respondent of the sum found due
upon the account.
The respondent contended on the merits that he was not a promoter of the company as formed, but
that the formation of the company was part of a fraudulent conspiracy on the part of Ernest Terah
Hooley and others to obtain from him large sums of money, and that he in fact made no profit but
sustained a severe loss.
The facts are fully stated in the report of the case before Astbury J., and are summarized in the
judgment of Viscount Finlay.
Astbury J. found as a fact that the respondent was a promoter of the company, and that the secret
profit received by him amounted to 35,390l. *960
The Court of Appeal, by a majority (Warrington and Younger L.JJ.; Lord Sterndale M.R. dissenting),
reversed the order of Astbury J.
The Master of the Rolls and Warrington L.J. agreed with the conclusion of Astbury J. on the facts,
except that they were of opinion that the amount of profit found by him was subject to certain
deductions.
Younger L.J. held that nothing effective had been done except under the direction of Hooley, and that
the respondent was not in fact or in law the promoter of the company as formed.
Warrington L.J. was, however, of opinion that the shares and debentures which were received by the
respondent were invalidly issued, on the ground that no statement in lieu of prospectus had been then
filed to comply with s. 82, sub-s. 1, of the Companies (Consolidation) Act, 1908 , and, consequently,
that there was no profit for which the respondent could be held liable to account, and Younger L.J.
agreed with this view of the law.
Lord Sterndale M.R. held, on the contrary, that, assuming that the allotment of shares and debentures
was void as not complying with s. 82, sub-s. 1, the respondent, having been put by the company in
control of something out of which he made a profit, was bound to account to the company for that
profit.
1924. Feb. 4, 5, 7, 8. Luxmoore K.C. (with him Wallington ) for the appellant. On the question whether
the respondent was a promoter this House will not disturb the findings of the trial judge and of the
majority of the Court of Appeal in the affirmative. On the question whether the respondent made a
secret profit for which he was accountable to the liquidator it is objected on his behalf that there was
no valid allotment of the shares and debentures which he received as promoter, first, because no
statement in lieu of the prospectus had been filed with the registrar before allotment as required by s.
82, sub-s. 1, of the Companies (Consolidation) Act, 1908 , and, secondly, because at the date of the
allotment the company had not in fact been incorporated; and that consequently *961 there was not
in the hands of the respondent any property of the company out of which a profit could be made. As
to the first objection, s. 82, sub-s. 1, does not say that an allotment which does not comply with its
provisions shall be void. The majority of the Court of Appeal, however, relying on the dicta of
Warrington J. and Swinfen Eady L.J. in In re Blair Open Hearth Furnace Co. 3 , have held that that is
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the effect of the sub-section. The dicta in question are obiter only and are open to review, and the
view suggested by Astbury J. - namely, that the provisions of the sub-section are merely directory and
intended to apply only to the period before a statement in lieu of prospectus is filed - is to be preferred
for the reasons stated in his judgment: see Maxwell on Interpretation of Statutes, 6th ed., p. 369;
Lodge v. National Union Investment Co. 4 ; In re Suarez. 5 On the true construction of the Act, reading
s. 82 with the succeeding sections, particularly s. 86 , there is nothing to make the allotment void.
Even if the allotment was illegal the doctrine of estoppel applies: Webb v. Herne Bay Commissioners.
6
If the allotment was void the company could not complain. They could not say to the respondent that
his shares were invalid, for he was not a shareholder, and they could not issue a further set of shares,
because they would be estopped as against the purchasers. But the respondent has money in his
hands as the proceeds of these shares and debentures; he has been put into possession of
something, whether it be shares and debentures or pieces of paper, out of which he has made a
profit, and he cannot be heard to say that the shares and debentures have been invalidly issued. As
to the second objection, the certificate of incorporation is conclusive proof that the company was
incorporated on January 6, 1920, and it is deemed in law to have been in existence on the whole of
that day. As to the nature of a promoter's liability see Carling's Case . 7
R. Fortune for the respondent. The respondent was not a *962 promoter of this company, because
the company which he agreed to promote was not the company which was in fact incorporated. The
mere fact that the respondent bought this property (if he did buy the property) with a view to forming a
company does not make him a promoter: Erlanger v. New Sombrero Phosphate Co. 8 ; In re Cape
Breton Co. 9 ; Ladywell Mining Co. v. Brookes 10 ; In re Lady Forrest (Murchison) Cold Mine. 11
Assuming that he was a promoter, he made no profit at the expense of the company. The only profit
made was by the fraudulent unloading of worthless shares. That sum could be recovered by the
purchasers of the shares, but it is not a profit which can be claimed by the liquidator: In re Ambrose
Lake Tin and Copper Mining Co. 12 If the respondent made any profit it was not a secret profit,
because the facts were known to the original allottees, who were either parties to the transaction or
nominees of such parties. Further, the shares and debentures were not validly issued. The company
was not incorporated at the time of the allotment. The allotment was on the afternoon of January 6,
and the certificate was not signed till January 8. Assuming that the certificate of incorporation is
conclusive as to the date (see s. 17, sub-s. 1), s. 16, sub-s. 2, says that "from the date of
incorporation" the subscribers of the memorandum shall be a body corporate capable of exercising all
the functions of an incorporated company. "From the date" there means that the day of incorporation
is excluded, and that phrase is used for the purpose of avoiding all difficulties about portions of a day
and all inquiries as to the precise time when the certificate was signed: Goldsmiths' Co. v. West
Metropolitan Ry. Co. 13
[LORD DUNEDIN referred to Mercer v. Ogilvy. 14 ]
There is no ground for importing into the Act decisions on other branches of the law. The effect of that
decision would be to alter "from the date" to "on the date." As to s. 82, sub-s. 1, the majority of the
Court of Appeal were *963 right in holding that the failure to file a statement in lieu of prospectus
rendered void whatever purported to be done. If the documents are invalid any one who took them
would have a cause of action to recover back his money for want of consideration. The liquidator
cannot say there is a profit arising from a non-existent document. If a trustee has got money on a
worthless piece of paper the cestui que trust cannot claim the money, because the trustee would be
bound to pay back the money to any one from whom he got it. The respondent would have no
defence to an action by a purchaser of the shares for the return of the money. How then can the
company claim the full value of the shares from the respondent? How is the respondent to be
protected from having to pay the money twice over? Lord Sterndale, in making his observations on
this point, did not accept the view that the shares were invalid under s. 82, sub-s. 1. The only basis of
these misfeasance summonses is that the trustee is improperly withholding money in his hands from
the cestui que trust.
The House took time for consideration.

1924. May 9.

VISCOUNT FINLAY.
My Lords, in this case application was made by the liquidator of the Jubilee Cotton Mills, Ld., on a
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misfeasance summons against the respondent Lewis to render him accountable to the company for
the amount of certain concealed profits alleged to be made by him as a promoter of the company.
The summons was heard by Astbury J., who made an order against Lewis, but this order was
reversed by a majority in the Court of Appeal. On the present appeal the liquidator asks that an order
should be made in the terms of the dissenting judgment of the Master of the Rolls.
The hearing of the summons before Astbury J. extended over twelve days and the evidence is very
voluminous. It relates to the formation of the company to acquire and take over as a going concern
and carry on the business of cotton spinners then carried on at Todmorden under the style of the
Jubilee Cotton Mills. The evidence was summarized *964 by Warrington L.J. in a statement made by
him in the course of his judgment in the Court of Appeal, and this statement was accepted by the
Master of the Rolls as correctly giving the result of the evidence as to promotion. It is as follows 15 :
"The scheme to which, early in December, 1919, Lewis became a party was that a company should
be formed with a capital of 150,000l., divided into shares of 1l. each, and with a power to create and
issue debentures to be exercised in the first instance by the creation and issue of debentures for
30,000l. That this company should take the freehold of the mills and the other property above referred
to for 180,000l. to be satisfied by the issue of debentures for 30,000l. and the allotment of fully paid
shares for 150,000l. That Lewis should provide 30,000l. in two instalments of 15,000l. in cash as
security, for which he should receive the debentures for 30,000l. That he should also receive 95,000
fully paid up shares of 1l. each, of which 20,000 were to go to Demery, leaving 75,000 at his own
disposal. The remaining 55,000 shares were to go to the owner of the mill. It was further arranged
that Demery was to carry out the details of the promotion and formation of the company, acting
therein as the agent of Lewis."
To this statement must be added the fact that Lewis sold his 75,000 shares mainly to Hooley, and the
price was paid to Lewis partly in cash and partly in shares in other companies. Demery was also a
respondent on the misfeasance summons, but the present appeal is concerned only with Lewis.
The first question to be determined is whether Lewis was a promoter of the company. If he was he
stood in a fiduciary position towards the company and would be liable to account to it for any secret
profit made by him in connection with the purchase.
Astbury J., after a prolonged hearing, came to the conclusion that he was a promoter, and his
conclusion on this point has the concurrence of Lord Sterndale M.R. and of Warrington L.J., but not of
Lord Blanesburgh. In my opinion the decision of Astbury J. on this point was right. He had the great
*965 advantage of hearing and seeing the witnesses; and the objections which were urged in
argument in your Lordships' House to this conclusion, concurred in as it was by the majority of the
Court of Appeal, appear to me to fail. It is, indeed, beyond doubt that the leading part in the promotion
of this company was taken by Hooley, and the allegation of Lewis that he was himself defrauded by
Hooley may be accepted. But the fact remains that Lewis took part in the promotion. The part he
played was, no doubt, subordinate to that played by Hooley, but he acted on his own account, not as
a servant or professional man. It appears to me impossible to frame any definition of the term
"promoter" which would not include one who took the part which Lewis did in bringing this company
into existence. Astbury J. sets out the facts in detail, and the fact, if it be one, that Lewis was himself
one of Hooley's victims can afford no answer.
An attempt was made to exonerate Lewis from liability as a promoter on the claim that the company
which he intended to promote was to have been a company of a different type from that which in fact
came into being. It was said that he contemplated that the company should be one in which he
himself, Fletcher the vendor, and Demery should be the only shareholders. But he was content to
leave the matter to Demery and he never limited his authority in the manner suggested. He
acquiesced in the shape which the company ultimately took. If the company proved not to be what he
had authorized he should have withdrawn from the enterprise. On the contrary, he stopped on as
promoter of the company, although it may not have been in the form which he had originally
contemplated.
Cases have been referred to in which a person who had acquired a property was not held to be a
promoter of a company afterwards formed to acquire it from him, but such authorities are irrelevant on
the facts of the present case as to Lewis's share in the promotion of this company.
Lewis as a promoter is therefore liable to the company for the amount of any secret profit made by
him on the sale by him of the 75,000 shares which he took. *966
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It was, however, suggested that the profit was not secret. Astbury J. says (Appendix p. 577, letter G)
that the signatory members were not proved to have had any knowledge of the interest of Lewis and
others in the shares issued as fully paid up. It was, however, suggested before him (p. 597) and
before this House that it should be inferred that the signatories were "nominees of Hooley and
Demery with knowledge of the true facts, express or to be inferred, and that therefore there was
sufficient disclosure to all the shareholders" (p. 597, E). Astbury J. refused to draw any such
inference, and upon this point I will only observe that the contention would appear to be in substance
that all the signatories were accomplices and, if so, it is not easy to see how their knowledge would
help the case of the respondent. Knowledge on the part of accomplices cannot be put on the same
level as knowledge by independent persons acting in the interests of the company as a whole. I think
that the profit made by Lewis must be treated as secret profit and therefore the property of the
company in the winding up.
There remains for consideration the question what for the purposes of the present application should
be the measure of the liability of the respondent.
It was urged that the issue of these shares was void and that the shares were therefore worthless.
This was put on two grounds. The first ground was that there was no prospectus and therefore that no
shares could be issued until a statement in lieu of prospectus had been filed under s. 82, sub-s. 1, of
the Companies Act of 1908 .
I do not think that it is necessary in the present case to determine what is the effect of the issue of
shares in contravention of the first sub-section of s. 82. I entirely agree with the observations of Lord
Sterndale on this point (Appendix, pp. 617, 618). Lewis got from the company the power of disposing
of these shares. As between the company and himself any profit which he made by disposing of them
would belong to the company. His power of disposing of these shares was acquired by way of a
secret profit and for any price which was obtained for them he would be accountable to the company.
Whatever flaw there might be in the *967 shares, that could not justify him as against the company in
keeping for himself what he had realized by disposing of them. As between himself and the company
the price he got for such shares belonged to the company. The possibility of conflicting claims could
not justify him in retaining it for himself as against the company.
It appears to me that precisely the same considerations apply to the second ground urged on behalf
of Lewis under this head. This second ground was that the company was incorporated on January 6,
1920, as the certificate states, and the allotment of the shares purports to have been made on the
same day, and that there is nothing to show that the allotment was made after the incorporation and
that any allotment made before incorporation must be void. In my opinion, the answer made by Lord
Sterndale to the first objection applies equally to this second objection. Even if it be assumed that the
allotment should be held to have taken place before the incorporation and would therefore be a
nullity, this would not entitle Lewis to retain as against the company the price he received for what
were treated as shares. Lewis sold them as having been validly issued by the company. By s. 17 of
the Act of 1880 the certificate is conclusive evidence that the registration was duly effected on
January 6, and there is no evidence to show at what time the allotment of the shares was made. I
share the doubts which the Master of the Rolls expressed as to the propriety of entertaining this point
at all in the absence of evidence as to what exactly took place on registration, but even if the point
were otherwise a good one, it could not avail the respondent who, being a promoter, dealt with these
shares as having been validly issued and must account to the company for the profit he thereby
made.
Only one point remains. The price was made up partly of money and partly of shares in other
companies. I think that the sum for which Lewis is liable should be ascertained, as the Master of the
Rolls held, by taking the portion paid in shares not at their nominal value but at their real value. With
this variation, the order made by Astbury J. appears to me to be correct. *968
My Lords, I am authorized to say that my noble and learned friend, Lord Birkenhead, concurs in this
judgment, and my noble and learned friend Lord Carson concurs in the result.
LORD DUNEDIN.
My Lords, on the first question I think it would be useless to amplify and impossible to improve upon
the analysis and summary of the evidence given in the admirable judgment of Astbury J. It follows
that Lewis was a promoter of the company, that he concealed from them that he was making profits in
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his transaction with them, and that he is bound to communicate the profit so made to the company as
represented by the liquidator. This view of the facts was shared by two of the learned judges of the
Court of Appeal. The dissenting judgment seems to me to be based on what is really a mistaken view
- namely, that because Hooley was behind Lewis and was what I may term the arch-promoter, Lewis
was not in fact the promoter. There is nothing against there being two promoters, each in turn
securing some advantage for himself which he conceals from the company.
In the argument before your Lordships counsel laid great stress on cases which affirm that the
purchaser of a property who contemplates the sale of that property to a company does not by that fact
assume a fiduciary position in a question with the company. Such cases, undoubtedly sound, have
here no application, in fact, to cite them is to remember the first proposition of the Erlanger Case 16
expressed in Lord Cairns's judgment and to forget the second. Lewis became a promoter not because
he got the interest in the mill from Fletcher as arranged by Hooley, but because he set in hand the
formation of a company to buy that interest.
There remains, however, another question, which I do not hesitate to say is one of delicacy and
difficulty, because the appellant has to get rid of the very formidable view proponed by Warrington
L.J. - namely, that what Lewis got from the company having been a void allotment of shares he
cannot be asked to pay money for what was really worthless.
The first question which it is necessary to determine in order *969 to raise this point is whether the
allotment of the shares to Lewis' order was a void allotment. It was argued that it was so on two
grounds: the first was that by s. 16, sub-s. 2, of the Companies Act , it is provided that from the date
of incorporation mentioned in the certificate of incorporation the subscribers of the memorandum,
together with such other persons as may from time to time become members of the company, shall
be a body corporate by the name contained in the memorandum, capable forthwith of exercising all
the functions of an incorporated company.
It was argued that "from the date" meant "on the day after the date," because it could not be
conceived that the registration should take place at the first hour of the day, and the allotment here
was made on the very day on which the certificate of incorporation is dated. There was an attempt
made to show practice as to registration, but that I look on as quite futile in view of the explicit words
of the Act in s. 16, sub-s. 2, and s. 17, sub-s. 1.
The case of Mercer v. Ogilvy 17 in this House seems to me to settle the question. The general point
then settled was that in such cases you must take what is termed civilis computatio; that is to say, a
computation of days and not de momento in momentum; that a day is taken as a whole irrespective of
whether an event happens actually at one particular hour of that day or at another. I therefore do not
think that the allotment is void on this ground.
The second question was that in terms of s. 82 no allotment may be made by a company which has
not issued a prospectus unless there has been filed with the registrar a statement in lieu of a
prospectus, and the statement in this case was admittedly not filed till after the date of the allotment.
On this point, although it was not necessary for decision, we have the opinion of Warrington J. and
Swinfen Eady L.J., in In re Blair Open Hearth Furnace Co. 18 , that the result is that any allotment is
void.
I agree with the opinions, and particularly with that of Swinfen Eady L.J., who says he considers the
matter settled by the case of Whiteman 19 in this House. He quotes some *970 remarks made by
myself in that case, but I wish to add that the same thing, though in somewhat shorter form, was said
by Lord Macnaghten. I am, therefore, of opinion that the respondent does make out the first point -
namely, that the allotment was a bad allotment. The result would doubtless be that any one holding
such allotment could have resisted successfully being put on the list of contributors in the list of
liquidation. That, however, does not end the question. The allotment, such as it was, was a thing on
which the respondent was enabled to make, and did make, money.
My Lords, here I am constrained somewhat to differ from the opinion of Astbury J. and the Master of
the Rolls. I do not differ from them altogether. I think that prima facie the promoter, who was a trustee
in a question with the company, must make good to the company what he has obtained as trustee;
but I do not think this duty is absolute, and irrespective of all other considerations as they put it,
because I think this duty is limited to restoring what he truly and eventually gets, and not to what he
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may get at any time.

Let me put this case: Suppose that a bona fide purchaser from the respondent had discovered that
the allotment was bad and sought for repetition of the money at the same time that the company
discovered the secret profit, and that both had sued at the same time. Could it be supposed that the
respondent would have been bound to pay both; and would not the claim of the bona fide transferee
of the allotment have been obviously superior to the claim of the company? I would, therefore, qualify
the general proposition thus, by saying that the promoter is bound to hand over what he has got
quocunque modo from what is really the property of the company, provided that what he has got is
not being vindicated from him in respect of a claim superior to that of the company. Now, when you
apply this doctrine to the facts of this case, it is, I think, clear that this case does not fall within the
terms of the exception. The respondent got from Hooley the fruits of his transference of his allotment.
Hooley never could recover from the respondent, because he did all that he did with full knowledge
and his eyes open. If to a small extent there was a transference to other parties, *971 these parties
have never come forward, and, therefore, there is no reason why the respondent should not make
over to the company what he got for the allotment of shares which he treated as his own but which, in
fact, belonged to the company.
I, therefore, come to the same conclusion as Astbury J. and the Master of the Rolls, though I disagree
with the absolute proposition laid down by them.
As to the amount for which the respondent is liable, I agree entirely with the modifications suggested
by the Master of the Rolls upon Astbury J.'s judgment. I think it follows from the ratio of the whole
judgment - namely, that the respondent must only make over what he really got and nothing more.
I agree with the judgment proposed.
LORD SUMNER.
My Lords, Astbury J. finds that Mr. Tom Lewis agreed to promote a company and, by his agent
Demery, did promote that company, ultimately called the Jubilee Cotton Mills Company; that out of
debentures and fully paid shares, purporting to be allotted by it as the purchase consideration for its
mill, but really to provide for promotion profits and without any corresponding benefit to the company
itself, Mr. Lewis was given the control of shares to a large nominal amount and was enabled to
dispose of them for substantial sums, which as profits came to his hands; and that the transactions by
which these promotion profits were made by him and others associated with him were not disclosed
to all the persons who were then members of the company. I think that the evidence fully bears out
these findings. Why, then, should Mr. Lewis not account for these gains to the liquidator of the
company in these proceedings?
He makes the following answers. First, that he received his share of the spoils on January 6, and that
the company was not in fact incorporated till January 8; second, that the company, being one which
issued no prospectus on or with reference to its formation, was forbidden by law to do what it in fact
purported to do - namely, to allot shares and debentures - on January 6, not having then filed with the
Registrar of *972 Companies any statement in lieu of a prospectus such as the Companies
(Consolidation) Act, 1908, s. 82, sub-s. 1 , requires; third, that he never actually pocketed the money's
worth of the shares or the debentures and may yet be obliged to make payments to third parties in
consequence of what he has done with them; and fourth, that in any case his profit shares and
debentures and their value are tainted with fraud and are, therefore, unfit to be claimed by a
clean-handed company.
As to the first point, relating to the date of incorporation, it is not clear how far it would assist Mr.
Lewis, if he could make it good, for, although the arrangements, under which he profited by his
position as promoter, came to fruition on January 6, the company was in fact brought into existence at
latest on January 8, and it lost in proportion as he had gained. Why, then, is it not the case in any
event that Mr. Lewis is, "as regards obtaining any secret profit for himself, in the same position as if
the company was existing at the time when the contract was entered into": Cotton L.J., Bagnall v.
Carlton 20 ? If the company, when subsequently formed, is burthened with the shares, for which it got
nothing and Mr. Lewis got much, why should he not then account for them, even though when first he
had control of them their existence, like that of the company, was still in futuro?
It is reasonably clear that in fact the registrar did not actually sign the certificate of incorporation till
28/02/2020 Delivery | Westlaw India Page 9

January 8, certain formalities not having been completed till that day, but the certificate itself, which
bears date January 6, 1920, certifies that the company was incorporated on the 6th; and s. 17 of the
Act of 1908 makes the statement conclusive evidence "that all the requirements of this Act in respect
of registration and of matters precedent and incidental thereto have been complied with."
It is true that the section does not add "on and from this date," but I do not think this is necessary, for
s. 16, sub-s. 1, provides, "that on the registration .... the registrar shall certify .... that the company is
incorporated," and, by sub-s. 2, "from the date of incorporation mentioned in the certificate of *973
incorporation, the subscribers .... shall be a body corporate .... capable forthwith of exercising all the
functions of an incorporated company." I think it is now well settled that in a statute such as this "from
the date of incorporation mentioned in the certificate" means (in the present case) "from some part of
January 6" and not "from no part of that date but from the earliest part of the next day," and that the
law does not in this connection divide a day into hours and minutes, but means by a day, the date of
which is given, the whole of that day. We must accordingly take it that the company was, from the
commencement of January 6, "a body corporate .... capable forthwith of exercising all the functions of
an incorporated company" limited by shares, and must be taken to have been already born at the
moment of allotment, whatever the actual fact may have been.
Before considering the next point - namely, how far this status and capacity are affected by
subsequent sections, especially by s. 82, sub-s. 1, I wish to draw attention to the following matter. In
the Court of Appeal a statement was admitted, which was made by a staff clerk in the office of the
Registrar of Joint Stock Companies, and was, I have no doubt, as exactly and responsibly made as if
it had been sworn to, which sets out the practice and procedure of that office. From this it appeared
that the practice is, in cases where everything is found to be in order, to date the certificate of
incorporation as of the day when the papers, requisite for the registration of a company, are delivered
to the office. In the ordinary course of office routine a substantial time is occupied by examination and
other necessary proceedings - in this case forty-eight hours - but the certificate when signed bears
the date of the day when the papers were first handed in to support the application for registration. He
says in conclusion: "The registration of the memorandum of association is effected by the registrar
signing the certificate of incorporation. Not until then is the official record of the registration entered in
the Office Register of Companies and the name and number inserted in the public index. .... The
certificate is antedated to the *974 6th January for the reason that that is the date of application for
registration and the date upon which the fees are paid."
No doubt it is thought that a diligent applicant, who has done all that was required of him at the outset,
ought not to be prejudiced by a lapse of time, which is only made necessary by the routine of the
office, but I think it has been overlooked that the certificate is conclusive evidence and under this
procedure makes the date of incorporation, after which the company is forthwith capable of acting as
a company, a date substantially earlier than that on which the registrar, being satisfied that he ought
to do so, signs the certificate and so completes the company's incorporation. Nothing in the statute
authorizes the registrar and his officers to antedate the incorporation. No doubt it may be said that the
file, which is open to the public, is only made up after the registrar signs the certificate, and, therefore,
that as regards those who come to search it no harm is done, but this is not enough. As this case
shows, the practice also lends, or may lend, a validity to action, taken when the company is not yet
incorporated, that it would otherwise lack, and the statute confers no authority on the registrar to
create an ex post facto regularity by making on the face of his certificate a statement which is
conclusive evidence of the truth of something that is not the fact. A revision of this practice might well
be considered.
My Lords, as to the second point, I think that s. 82 does forbid the company to do what those, who
then manipulated it, caused it to purport to do on January 6, but I cannot see that the company is
therefore entitled, as was suggested, to treat this allotment now as voidable. Whatever possibility
there may be of saying that, in the case of a natural person, a statutory avoidance of his liability is one
which he need not insist upon unless he chooses, the same cannot be predicated of artificial persons
in the same measure, if at all. Sect. 82, sub-s. 1 , is couched in the terms of a categorical imperative
and constitutes a restriction upon the company's legal capacity for action. An artificial person is the
creation of the law; how can it elect to do what its creator says it shall not do at *975 all? It has no
free will; no power of its own to obey or disobey. Nor, again, is this restriction imposed simply for the
benefit or protection of the company. It would appear that members of the public, likely to be led to
deal with the company, are also entitled to the benefit of the section and are intended to enjoy the
means of knowing what purports to be the condition of the company's affairs, even though it be
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inaccurate (In re Blair Open Hearth Furnace Co. 21 ), before they can become bound to it by a
purported allotment of its shares. If so, the company cannot treat as merely voidable something
which, in the interest of strangers, as well as of itself, the Act has forbidden to be done.
There is, however, the further question - is the premature allotment of shares absolutely ultra vires, so
that it has no effect, though all the forms of allotting have been completed, or is it an act which the
company is competent to do, having been incorporated, but is forbidden to do, not having duly filed its
statement of affairs? In the first event, as between the company and Mr. Lewis, nothing happened,
and what he sold to Mr. Hooley was worth even less than they both knew it to be. As between these
persons no estoppel arises, since both knew all the facts, and as between the company and other
persons, to whom Mr. Lewis passed shares, any estoppel could have arisen only after Mr. Lewis had
done with the matter, and must have arisen out of conduct on the part of the company, to which he
was a stranger. In the second event, however, it is not the case that nothing happened, but only that
something was done, which ought not to have been done, and the mere possibility that the company
might be bound by the allotment thereafter would be sufficient to justify a claim for an account against
Mr. Lewis for the profits made by putting the company in a position of contingent liability.
On examination of the Act of 1908 it appears to me, with all respect to Warrington L.J., who thought
otherwise, that the allotment of January 6 was not ultra vires altogether. The company had then been
incorporated, and as such was capable *976 of allotting its shares, unless its capacity in that regard
is taken away. I do not think that the prohibiting words of s. 82, sub-s. 1, take away the company's
capacity. They only prohibit its exercise. Words which say that a person shall not act in a certain way
are not apt words to show that he is not and shall not be able so to act at all. They assume the power
and try to restrain it. It is true that the section does not impose any penalties, either on the company
or on the directors, if the prohibited thing is done; but ss. 85 and 86, sub-s. 1 , provide for a very
similar matter, in language not substantially different, and it seems to me not only that they assume
that a prohibited issue, if made, may nevertheless bind the company, but also that they were
superfluous, if the effect of s. 82 was to make the issue thereby forbidden an ultra vires act and a
nullity. Sect. 85 says that "no allotment shall be made of any share capital of a company offered to the
public for subscription unless" certain conditions are complied with, and s. 86 says that, if an allotment
in contravention of s. 85 is nevertheless made, the applicant shall have one month after the
company's statutory meeting, but no more, within which to avoid the transaction. Not only does this
assume that certain shares allotted in contravention of the Act will bind the company, unless the
allottee takes action to the contrary, but, if the company offering its share capital to the public for
subscription was one which issued no prospectus on or with reference to its formation, and if it had
failed to file a statement in lieu of a prospectus (a case quite within the more general words of s. 85,
sub-s. 1 ), ss. 82 and 86 would be in conflict unless s. 82 were read, as I think s. 86 must be read, as
recognizing the ability of the company to make the allotment, though directing it first to file its
statement.
Accordingly, I do not think that s. 82, sub-s. 1, assists the respondent's argument, unless it goes the
full length of making the events of January 6 wholly null. If so, I need express no opinion, which,
indeed, ought not to be done in their absence, as to the rights by estoppel of those persons to whom
the company has subsequently issued certificates *977 of shares purporting to be held by them; nor
need I discuss the view of Lord Sterndale that, even if the allotment was wholly void, profitable
dealings by Mr. Lewis with the shares purporting so to be allotted would involve him in an account of
those profits and in payment to the company, though I am far from expressing dissent from it. For the
reason given above, I think that the action of Mr. Lewis, particularly on January 6, involved the
company in at least a potential liability to recognize these shares, which constituted for Mr. Lewis a
promoter's profit of value, though no consideration for them was received by the company, and, the
same thing applying to the debentures, I think he must give up his gains as to both.
In the course of his judgment in the action brought by Mr. Marple 22 , Russell J. said of Mr. Lewis,
when describing his relations with Mr. Ernest Terah Hooley, Mr. Demery and their associates, that he
had fallen among thieves. I do not wish to dissent from the expression, but it seems to me that the
very most has been made of it. When Mr. Lewis's share of the promotion profits had come to his
hands on January 6 he had already done very well out of the Jubilee Cotton Mills. It was a pity that he
could not let well alone, for, before he had done with him, Mr. Hooley had got out of Mr. Lewis most of
his share of those gains, and not many minutes had passed before this process was begun. It may be
taken (without prejudice to what Mr. Hooley might like to say about the matter) that Mr. Lewis was got
the better of by Mr. Hooley not less neatly than were the mere outsiders, to whom the bulk of Mr.
28/02/2020 Delivery | Westlaw India Page 11

Lewis's profit shares were ultimately transferred by Mr. Hooley.

On this, Mr. Fortune, who certainly left no stone unturned on behalf of his client, and indeed raised
several points of equal novelty and interest, strongly urged on your Lordships, as I understood him,
the following contention. Any shares that came to Mr. Lewis bore so strongly the dubious imprint of
Mr. Hooley's fingers, that the resulting profit really was not fit to be transferred to the Jubilee Cotton
Mills. I think this rather overlooks the object of the rule as to an agent's *978 secret profits, which I
take it is to check these breaches of duty by making them not worth while. No money could be more
tainted than a bribe paid or promised to an agent to induce him to betray his master, yet both briber
and bribee have to hand it over; after all, non olet.
It is suggested that somebody - Mr. Hooley or another - may still have some claim on Mr. Lewis for
some participation in these transactions. It may be so, though Mr. Hooley appears to be out of harm's
way, and the other parties have made no signs so far; but in any case I cannot accept the contention
that an agent can escape accounting for secret profits, which have come to his hands, merely by
saying that others have claims upon him too. There is no general rule that an agent who has made a
secret and improper profit can, as it were, interplead and, resigning his gains, leave the opposing
claimants to fight out their claims to the corpus delicti behind his back and between themselves. He
may have to account to his principal for his profits and to make compensation in damages to his
victim for his fraud, if he has been party to any. Of course, if something has come to his hands which
still belongs to another and can be retrieved, either by an action for the specific thing or by a tracing
order or otherwise, the profit has not really come to his hands so as to be his own at all, and he
cannot be made to account for what still belongs to some one else, but there is no such case here.
Nor is there any question here of the principal having to affirm some improper action of the agent, in
order to recover in his name profits not yet got in by him. No doubt, if the theory on which equity first
required an agent to disgorge his secret profits is, as has sometimes been said, that he has made
them on his principal's behalf and for his use, it is hard to see how anything done fraudulently by the
agent can have been deemed to have been done for the use of the principal, however profitable it
may have been to the agent himself. Equally, on the other hand, it is hard to see on what equitable
ground it can be said that, if an agent secretly makes an honest profit, he must give it up, but, if he
has made it by cheating a stranger, he can keep the money himself. *979
On the facts of the present case, however, Mr. Lewis has actually got the profits of his promotion,
sadly diminished, it is true. He did not cheat anybody; he was cheated himself. He is not exposed to
any claims. Fortunately for himself his opponents have been otherwise dealt with. No contracts of his,
tainted or not, have to be adopted or put in suit by the liquidator. Mr. Lewis simply wants to keep what
he still has left and cannot quite see how to manage it. He accordingly fails to lay a foundation for
these interesting arguments. He has been acquitted of all fraud and no one now charges him with
any. By common consent he was Mr. Hooley's victim, not his accomplice, and, if the result of this is to
deprive him of a possible opportunity of keeping his money at the cost of his reputation, he must
console himself by reflecting that the price of a good name is far above rubies, and that he is not the
first person who has had to cry "all is lost save honour!"
I think the appeal should be allowed with the modification as to the amount to be accounted for, which
was conceded by the appellant's counsel.

Representation
Solicitors for the appellant: Cohn, Seligman & Bax . Solicitors for the respondent: Grundy, Kershaw,
Samson & Co .
Order of the Court of Appeal reversed: Further ordered that the sum for which the respondent is liable
should be ascertained by taking the portion paid in shares of other companies not at their nominal
value but at their real value, and that the order of Astbury J. be varied accordingly, and that subject to
such variation the said order be restored. The respondent to pay the costs in the Courts below, and
also the costs of the appeal to this House. Cause remitted back to the Chancery Division (Companies
Winding Up) of the High Court to do therein as shall be just and consistent with this judgment. Lords'
Journals, May 9, 1924.
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1. [1923] 1 Ch. 1 .

2. [1922] 1 Ch. 100 .

3. [1914] 1 Ch. 390 , 399, 407-8.

4. [1907] 1 Ch. 300 , 306.

5. [1918] 1 Ch. 176 , 199, 200.

6. (1870) L. R. 5 Q. B. 642 .

7. (1875) 1 Ch. D. 115 , 126.

8. (1878) 3 App. Cas. 1218 , 1236.

9. (1885) 29 Ch. D. 795 .

10. (1887) 35 Ch. D. 400 .

11. [1901] 1 Ch. 582 .

12. (1880) 14 Ch. D. 390 , 395.

13. [1904] 1 K. B. 1 .

14. (1796) 3 Paton, 434.

15. [1923] 1 Ch. 1 , 19.

16. 3 App. Cas. 1218 , 1236.

17. 3 Paton, 434.

18. [1914] 1 Ch. 390 .

19. [1910] A. C. 514 .

20. (1877) 6 Ch. D. 371 , 407.

21. [1914] 1 Ch. 390 .

22. Unreported .
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