''Miles v Sydney Meat-Preserving Co Ltd'' was a 1912 decision of the

High Court of Australia The High Court of Australia is Australia's apex court. It exercises Original jurisdiction, original and appellate jurisdiction on matters specified within Constitution of Australia, Australia's Constitution. The High Court was established fol ...

regarding

directors' duties Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' ...

and

shareholder primacy Shareholder primacy is a theory in corporate governance—especially when dealing with United States corporate law—holding that shareholder interests should be assigned first priority relative to all other corporate stakeholders. A shareholder ...

. Businessman

William John Miles William John Miles (27 August 1871 – 10 January 1942) was an Australian businessman and far-right political activist. Early life Miles was born on 27 August 1871 in Woolloomooloo, New South Wales. He was the son of Ellen (née Munton) and John ...

sued the company, of which he was a major shareholder, for its failure to pay out

dividends A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

. The court found by a 2–1 majority that there was no

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

duty of the

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

to maximise

shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...

Background

The Sydney Meat-Preserving Company (Limited) was established in 1871 by a

private act Proposed bills are often categorized into public bills and private bills. A public bill is a proposed law which would apply to everyone within its jurisdiction. This is unlike a private bill which is a proposal for a law affecting only a single p ...

of the

parliament of New South Wales The Parliament of New South Wales is a bicameral legislature in the Australian state of New South Wales (NSW), consisting of the New South Wales Legislative Assembly (lower house) and the New South Wales Legislative Council (upper house). Eac ...

, for the purposes of "carrying on the business of meat preserving and disposing of and exporting the products". The operations of the company were governed by a

deed of settlement In corporate governance, a company's articles of association (AoA, called articles of incorporation in some jurisdictions) is a document which, along with the memorandum of association (in cases where it exists) form the company's constituti ...

which provided that a

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

should be paid to shareholders from the "clear bona fide

net profit In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...

s" of the company, although the board of directors could in its discretion set aside profits as

retained earnings The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that peri ...

.. A majority of the shareholders of the company were graziers, and over time the operations of the company were conducted "not with a view to paying dividends to the members, but with a view to benefiting the pastoral industry generally". No dividends were ever paid, but funds were used to buy stock from graziers on non-commercial terms during periods of downturn.

, a major shareholder in the company who was not a grazier, brought an action in

equity Equity may refer to: Finance, accounting and ownership * Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the dif ...

against the company and its four directors – William Wright Richardson,

Walter Russell Hall Walter Russell Hall (22 February 1831 – 13 October 1911) was an Australian businessman and philanthropist. Biography Hall was born in Kington, Herefordshire, England, eldest son of Walter Hall, glover (later a miller), and his wife Elizabeth ...

, John Bassett Christian, and Lewis Porter Bain – seeking an injunction that would force the company to pay dividends. The case was brought before A. H. Simpson in the

Supreme Court of New South Wales The Supreme Court of New South Wales is the highest state court of the Australian State of New South Wales. It has unlimited jurisdiction within the state in civil matters, and hears the most serious criminal matters. Whilst the Supreme Court i ...

, who dismissed Miles' suit. Miles retained Edward Fancourt Mitchell and Richard Clive Teece as his barristers, while the company retained David Maughan and the board of directors retained

Adrian Knox Sir Adrian Knox KCMG, KC (29 November 186327 April 1932) was an Australian lawyer and judge who served as the second Chief Justice of Australia, in office from 1919 to 1930. Knox was born in Sydney, the son of businessman Sir Edward Knox. He ...

Ruling

Chief Justice

Samuel Griffith Sir Samuel Walker Griffith, (21 June 1845 – 9 August 1920) was an Australian judge and politician who served as the inaugural Chief Justice of Australia, in office from 1903 to 1919. He also served a term as Chief Justice of Queensland and t ...

, joined by Justice

Edmund Barton Sir Edmund "Toby" Barton, (18 January 18497 January 1920) was an Australian politician and judge who served as the first prime minister of Australia from 1901 to 1903, holding office as the leader of the Protectionist Party. He resigned to ...

, upheld the ruling of the Supreme Court. He stated that the board's failure to pay dividends was still within the spirit of the company's constitution, as the interests of the company were linked with the health of the industry as a whole. He observed that:

The law does not require the members of a company to divest themselves, in its management, of all altruistic motives, or to maintain the character of the company as a soulless and bowelless thing, or to exact the last farthing in its commercial dealings, or forbid them to carry on its operations in a way which they think conducive to the best interests of the community as a whole.

Justice

Isaac Isaacs Sir Isaac Alfred Isaacs (6 August 1855 – 11 February 1948) was an Australian lawyer, politician, and judge who served as the ninth Governor-General of Australia, in office from 1931 to 1936. He had previously served on the High Court of A ...

, in dissent, held that the board had adopted a consistent policy of withholding dividends and accumulating retained earnings, but that the policy which was no longer linked with the industry as a whole and was thus against the deed of settlement.

Legacy

Griffith's comments around the duties of companies to their shareholders have been cited as an early articulation of

stakeholder theory The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. It addresses morals ...

and rejection of absolute

. However, 20th-century Australian corporate law did not continue in this direction, but instead held that a company's interests were largely identical with those of its shareholders. Together with the earlier English case of ''

Hutton v West Cork Rly Co ''Hutton v West Cork Railway Co'' (1883) 23 Ch D 654 is a UK company law case, which concerns the limits of a director's discretion to spend company funds for the benefit of non-shareholders. It was decided in relation to employees in the cont ...

'' (1883) and the later U.S. case of '' AP Smith Manufacturing Co. v. Barlow'' (1953), ''Miles'' has been acknowledged as an early instance of legal recognition of

corporate social responsibility Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethicall ...

. The issue of shareholder rights to dividends was revisited in ''Sumiseki Materials Co Ltd v Wambo Coal Pty Ltd'' (2013), in which the Supreme Court of New South Wales recognised a shareholder's contractual right to a dividend under more narrow circumstances.

References

{{Reflist Judicial Committee of the Privy Council cases on appeal from Australia 1912 in Australian law 1912 in case law High Court of Australia cases Australian corporate law Dividends Shareholders

Background

Ruling

Legacy

See also

References