The Sun.
London, England, 1849-04-12 00:00:00

THE YORK, NEWCASTLE, AND

BERWICK RAILWAY.

THE REPOR T OF THE CONIMITTEE AP-
POINTED TO INVESTIGATE THE GREAT
NOR ra OF ENGLAND PURCHASE AC-
COUNT.

ChIirMaH—RoBERT PRANCE.
J-TonATIO LOVE. JOHN SHIELD.
JOHN CLAYTON. ROBERT DENISON.
St-Treat') -E. H. LAWRENCE.

The agreement for the purchase of the Great North of
England Railway was entered into provisionally in the
month of June, 1845, and the Act of Parliament for
carrying out that agreement passed on the 27th of July,
1846.
At the time when such agreement was entered into,
and such Act passed, Mr. Hudson, the chairman of the
York, Newcastle, and Berwick Railway, had not any
share or interest in the Great North of England Rail-
way, nor were any shares ever allotted to him.
The terms on which the several classes of shares in
the Great North of England Railway were agreed to be
purchased by the Yerk, Newcastle, and Barwick Rail-
way company were as follows, the principal of the pur-
chase-money of each class being payable ou the lst of
July, 1850:—
The 1001. shares at 2501. each, with interest at 10 per
coat. per annum on 1001. in the mean time.
The 401. shares at 601. premium per share, with in-
terest at 10 per cent. on 40/., deducting 4 per cent. on
amount uncalled.
The SOL shares at 45/. premium per share, with 5 per
cent. interest on calls until July, 1847, and 10 per cent.
afterwards on 301. until paid off.
The 15/. shares, on which 11. 103. only had been paid,
at 22/. 10s. premium per share, with interest at 5 per
cent. on calls to the Ist of July, 1849, and afterwards
interest at 10 per cent. on 15/. until paid off.
On the 26th of October, 1846, a special general meet-
ing of the shareholders in the York, Newcastle, and
Berwick Railway was held at York, when a stock was
created on which 6 per cent. per annum was guaranteed
till the Ist of July, 1850, in order to provide for " the
purchase of the Great North of England Railway and
works."
The object of this measure is stated to have been to
spread the payment for the shares of the Great North
of England Railway Company, amounting in the whole
to three and a half million sterling, over a apace of three
years and a half, instead of making that payment on one
day, viz., the Ist of July 1850.
After the conclusion of the business of the special
general meeting of proprietors on the 26th of October,
1846, a meeting of the -directors was held, at which it
was resolved that the shares:in the Great North of Eng-
land Railway Company should be bought by the York,
Newcastle, and Berwick Railway Company, and that
Mr. Hudson alone should have the management of the
purchases. The directors are agreed that such a reso-
lution or understanding was come to at this meeting.
But no record of it is to be found on the minutes of the
proceedings of the directors. The absence of such record
is ascribed by some of the directors to their wish to keep
as secret as possible the fact of the company being pur-
chasers of shares; a knowledge of which fact might, in
their judgment, have had the effect of enhancing the price
of the shares in the market.
We cannot, however, admit this as any reason for
the omission, particularly as Mr. Hudson has himself
stated in his evidence (as the fact was), that it was well
known at that time that the company were purchasers of
the shares.
At this meeting lir. Flews, one of the directors, sup-
posed from his connexion with the Great North of Eng•
land,Railway to be best qualified for the task,was requested
to make a calculation of the value to this company of
the different classes of Great North of England Railway
shares. On his return to his place of residence at Dar
ng
it appears that Mr. Plows prepared a statemen-
of the comparative value of the several classes of Great
North of England Railway shares, showing the separate
value (assuming the market price of the day as his stan-
dard) of each class of share to a party investing money at
five per cent.
This statement, he believes, he transmitted either on
the 27th or the 28th of October, 1846, to Mr. Close, the
secretary of the company at York.
As this calculation of Mr. Flews has been much re-
ferred to in the evidence taken before us, we subjoin a
fac-simile of it.
The sums expended by the directors of the York,
Ncwclstle, and Berwick Railway Company in buying
Gr. at North of England Railway shares up to the
25th of January last, amount in the aggregate to the sum
of 749,5241. 14s 7d.
The first sale to the company was by Mr. Hudson
himself to the extent of 131,8671. 9s. 3d., to which sale
Mr. Hudson has assigned the date of the 27th of Octo-
ber, 1846.
It appears in evidence that Mr. Hudson had early, in
rt
ihoeu
sm oc
luatshs
eos of
of
ct o b
Greate r ,
NloBr4t6 begun to
h,
of
Eng
an
d Railwaypurchase the va
shares
on his own account, and that on the 27th of October,
1846, being the day after the special meeting, he effected
the sale of his Great North of England shares to the
company.
The prices were fixed by Mr. Hudson himself, assisted
by Mr. Close, and the principle alleged to have been
adopted was based on Mr. Plews's calculation; but this
part of the thransaction appears to be involved in some
obscurity as to dates, for if the sale took place on the
27th of October, Mr. Plews's calculation of the value
of the shares could scarcely have been at York on
that day.
We find in the journal of the company, entitled " the
Great North of England Purchase Journal," the follow-
ing entry without date.
Sundries, Dr.
To George Hudson and others.
£ 5. d.
... 36,240 0 0
... 21,631 10 0
... 5,187 0 0
... 67,539 0 0
••• 990 18 9
279 0 6

1001. shares (151 shares)
401. ►hares (342 shares)...
30/. shares (91 shares)
151. shares (2,874 shares)
Brokers' commission
Transfer stamps
•••

£131,867 9 3
This entry represents the whole amount of the Great
North of England Railway shares sold by Mr. Hudson
to the company, and the amount appears to have been
paid to him by two cheques on the York Union Banking
Company—the one for 81,100/.,dated the 27th of October,
1846, and the other for 50,7674 9s. 3d., dated the 27th
of November, 1846, both of which cheques are signed by
two directors of the company, Messrs James Richardson
and Robert Davies. The cheques have been produced to
us, and the payments are entered in the banker's book,
and stand in the ledger of the company under their re-
spective dates.
The prices paid to Mr. Hudson for these shares, com-
pared with the market prices of the assigned date of the
sale, present the following results, viz. :
Per Share. Market Price. Excess.
X s. Per share. X. s.

S.
151 100 Shares fixed by Mr.

Hudson at.......... ..... . 240 0 237 453 0
342 40 PP 13 5 6114 598 10
91 30 57 0 55 132 0
2,874 lb PP 23 10 21 7,185 0
Making a total excess on these several classes of shares
compared with the market price of the day of 8,4181. 18s.
The difference between the price assigned by Mr.
Close to the 151. shares and the market price of the day,
and Mr. Plews's calculation, is no less than 21. 103. per
share. In the evidence given before us, Mr. Close as-
cribes this difference to a mistake occasioned by an erro-
neous combination on his part of figures taken from Mr.
Plews's calculation, which gave a result of 24/. 33. 6d.
per share as the value of these shares, whilst the market
price of the day was only 211. per share, which, in fact,
was the value assigned to them by Mr. Plews.
As a difference of opinion exists in the committee re-
specting this explanation, we leave it, without comment,
in the hands of the proprietors.
The number of these shares sold by Mr. Hudson to the
company being very considerable, the company, in this
tranthseacetixotne,npta
oifd7inJeBxscless of the market price
injuryoPflTrt thheoisf the
t day,to
however, cannot be taken as the measure of the
arge a
number
to the
of shares by Mr. lludson, on his own ac-
the company, inasmuch as the purchase of so
count, during the month of October, without any ques-
olifo
Onofccot
tonhbt contributed u
ir.
b uste n
id to
me
repaid,
pt of
opnrictehel9th o
the 27t hf
February last, 2,8741., under the circumstances after
stated. rn.halinucedsothne

We think it due to Mr. Hudson to append his state-
ment with respect to this transaction
" In fixing the price which I thought in fairness I
ought to receive from the company, the price estimated
by Mr. Plews, and shown to me by Mr. Close, was
241. 3s. 6d. per share as a price at which it was advan-
tageous for the company to purchase; and I then di-
rected Mr. Close to put them down to the company at
231. 10s. per share, and I never discovered that there
was any error, or doubted that the transaction was per-
fectly correct, until Monday morning before the meeting,
coming to York, I was looking at the average price put
in the statement, it struck me that the average looked
very high; but before the statement was sent out it was
submitted to a meeting of the board, and although some
of the directors went into the calculations, yet none of
them made any remark as to the high average of these
shares. Upon arriving in York I went into Mr. Close's
office, and I stated to him that the average looked very
high, and asked of whom had been bought the largest
number of these shares. He referred to the books of
the company,
me. I said, Then turn to see what are the prices
and stated they were principally bought of
given for the same description of shares to other
parties,' upon which, seeing that the shares
taken of me were at a higher price than those taken of
other parties. I said, I must pay the 11. call due upon
them immediately, and after the meeting you and I must
go carefully into that account, and we must have the
matter set right." Mr. Hudson accordingly drew a cheque
on his own bankers for 2,8741., which was paid on the
19th of February to the Great North of England Rail-
way account, being IL per share remaining uncalled on
2,874 15/. shares.

Sir John Simpson confirms this statement thus far:
he states—" That he was present at the board meeting
of the directors, on the 20th of February last, and heard
Mr. Hudson say to Mr. Close, I am sure, or I am ealis-
fied, there is something wrong in these 15/. shares; we
must look into it after the meeting.' "
With the power Mr. Hudson possessed of giving this
explanation, it is to be regretted that ho should have
moved the adoption of the report, including tho Great
North of England purchase account, by the meeting of
the 20th of February, without making any correction or
noticing the eNistence of any error.
We have felt it our duty to endeavour to trace the pur-
chase by Mr. Hudson of all the shares included in his
sale to the company, and to ascertain the dates of the
purchase, and the price at which they were bought,
which seemed to be important with reference to thr
principle that Mr. Hudson must be considered as having
made those purchases in the character of a trustee fur
the company; this inquiry bas been attended, with con-

siderable difficulty, and has occasioned delay in making
our report.
All these shares Vern to have been purchased by Mr.
Hudson between the sth of October and the l'hh of
November, 1846, and not at earlier dat,, s as was origin-
ally apprehended, and consequPatly Mr. Hodson's profit
by the transaction has not been so considerable as it was
at first believed to have been.

With respect to the payment to Mr. Hudson for these
shares by the company. NI e feel ourselves called upon to
observe that at the period whea ha received the cheque
for 81,100/. (the 27th ol October, 18.16,) he himself could
not have paid more than about 25,0001. on account of the
purchase of these shares, although he might be called
upon to make a further payment of about 70,0001. on the
30th of October. The effAit of this would Le that the.
shares bought by Mr. Hudson on his own account, and
sold afterwards at an enhanced price to the company,
were to a considerable extent paid for in the first iustauce
with the money he had received from the company.
The impropriety of such a transaction between an in •
dividual and a company to which he stanas in the relation
of a trustee cannot be doubted. And we are of opinion
that the sum charged by Mr. Hud-on for these shares
ought to be reduced to the sum he actually paid for them,
and the difference repaid with interest.
It appears Irons the evidence of the other directors
that they were not aware of any purchase having been
made by the company of Mr.Hudsoa. And the auditors
were also ignorant of the feet ; they having contented
themselves with an examination of the books without
ascertaining whether any origical contract existed.
The next contract of importance is that of Mr.
Christian Allhusen, amounting to 218,669/. 12s. On
comparing the prices of the shares included in this c,ai-
tract with the market prices of the day, viz 19th of De-
cember, 1846, we find the company has paid in excess
a sum of between 5,0001. and 6,0001.

The rest of the items, composing the sum of 749,5241.
14s. 7d., have been carefully investigated, and we have no
comment to make on them.

The next matter which required our investigation was
the charge for brokerage, amounting to 2,499/. 7s. sd.
This sum is reduced to 1,6931. 141. lid. by deducting
8051. 12s. 6d. erroneously placed under the head of bro-
kerage, which was, in point of fact, a payment for in-
terest on bills of exchange which were paid as part of
the purchase money of the shares sold by Mr. Alihusen

to the company. -
Of the remaining sum, the sum of 9901. 18s. 9d. was a
payment made to Mr. Hudson for brokerage on the
shares sold by him to the company. This, according to
the statement of Mr. Close, was done on the assumption
that the company must have paid brokerage if they had
bought those shares in the market, and without refer-
ence to the consideration, that Mr. Hudson must have
paid brokerage if he had sold his shares in the market.
The charge for brokerage cannot be justified or main-
tained.

The next item is a charge by Messrs. Lawrence and
Co. of 5471. Is. ld., which was paid to them, being the
full rate of brokerage; although, in their original con-
tracts produced to us, they charged only half.
We find, however, they returned one-half of this
amount to Mr. Hudson, who states he gave the order as
Chairman of the York Union Bank Company, and that
he paid to the bank the sum he so received.
As all the other brokers employed by the company
have charged only halt brokerage, we do not consider
there is any reason in this case why the company should
sustain a loss, and we are of opinion the sum so re-
ceived should be paid to the company.
The remaining liens is that of Mr. Satterthwaite, who
sold to Mr. Hudson a parcel of shares amounting to
16,500/., and stamps 100/., making 16,600/., which sum
he was paid by Mr. Hudson himself. The particulars
of this purchase, as entered in the books of the com-
pany, are—

250 301. shares
Stamps ...
Commission

£. s.
... 16,462 10
... 100 0
... 100 0

16,662 10
Which sums were repaid by the company to Mr. Hudson
as follows:-
1847.
April 5 ...
May 12

£ s.
... 16.562 10
... 100 0

16,662 10
Being 621. 10a. in excess of the sum paid by him.
According to the evidence of Mr. Hudson, he bad in.
structed Mr. Close to pay to his credit the sum of 1001.
about that time for travelling expenses, and ho could
only account in that manner for the mistake we now
point out.

- We think it necessary to add that the sum raised by
calls made and paid in advance was 1,427,8334 10s., of
which the sum 749,5241. 14g. 7d. has been applied to the
purposes intended by the proprietors in their resolution
of the 26th of October, 1846. This sum is about one-
fifth of the whole amount required to pay off the Great
North of England proprietors, and it has been invested
in Great North of England Railway shares as follows:
£. s. d.
351,822 2 0
155,528 19 4
174,705 7 6
61,586 9 9

In the year 1846 ...
1847 ...
1848 ...
1849 ...

£743,642 18 7
There remain, therefore, four-fifths of the entire sum
still to be paid.
We think a more beneficial result would have oc-
curred to the company had the resolution of the pro-
prietors before referred to been carried into effect to a
much larger extent at a❑ earlier period.
The Great North of England purchase account has
been very imperfectly kept. The transactions to which
it relates commenced in the month of October, 1846;
and yet it is admitted that no books were opened till
the month of December or January lust, when a journal
and ledger appear to have been begun and posted up,
the entries in the journal of purchases of shares being
without dates, and being so made as to baffle examina-
tion without the aid of other materials.

The general accounts of the York, Newcastle, and
Berwick Railway Company, we hope, are dealt with in a
very different way.
The auditors seem to have misapprehended their duty
in auditing those accounts; they limited their examina-
tion to a comparison of the bank hook, in which are
entered the directors' cheques with the entries in the
journal and ledger, they have neither required the pro-
duction of vouchers nor original contracts—a mode of
examination which it is obvious must be utterly worthless.
The remissness of the directors in the discharge of
their duty with respect to this account is very remark-
able. From the 27th of October, 1846, till the 13th of
February last, according to their own statement they
remained in entire ignorance of the state of the Great
North of England purchase account, and made no in-
quiries about the matter.
A still greater degree of blame attaches to the two
directors who signed the cheque for 81,1001. on the 27th
of October, 1846, the day after the creation of the stock
for the purchase of these shares, without asking for,
or receiving any further explanation than that it was
for the purchase of Gi!eat North of England Railway
shares.

Shareholders have a right to expect of gentlemen who
accept the office of directors that they should be cogni-
zint of, and take part in, all important proceedings of
the company: .
It is not right that they std confer absolute power,
and impose undivided respon lit on one of their body,
however able and efficient he gig
The secretary ought not on- be competent to the
discharge of his duties, butahould`beltrittly confined to
the business of the company.
A course of proceeding directly the reverse of that
which we have found to have existed with respect to the
Great North of England purchase account ought to be
pursued both by auditors and directors in the affairs of
the York, Newcastle and Berwick Railway Company, in
order to give to that railway, possessing as it does so
many ( ssential elements of prosperity yet undeveloped,
its true value, and to insure the confidence of the pro-
prietors in its management.
ROBERT PRANCE.
HORATIO LOVE.
JOHN CLAYTON.
JOHN SHIELD.
York, March 29, 1849. ROBERT DENISON.

EVIDENCE OF THE WITNESSES.
WEDNESDAY, MARCEI 7, 1849.

. .
It was ordered by the Committee that the Secretary, Mr.
CLOSE. be summoned to attend them.

Mr. Prance—Explain the first item in the books of
the purchase of shares amounting to 131,8671. 9s. 3d.
Mr. Close—The shares were originally bought by Mr.
Hudson for himself, to the best of my knowledge, between
the passing of the Great North of England Act and the
special meeting of this company, called to confirm the
agreement made with the Great North of England Com-
pany on the 26th of Oct. 1846; Mr. Plows was requested
at a board meeting of this company by Mr. Hudson to
furnish a valuation of the value of the Great North of
England shares to this company. Mr. Flews sent me a
document (exhibited to the committee) giving the value
of the shares, Mr. Hudson asked me afterwards what
valuation Mr. Flews had put upon the shares. I told
him for the 100/. shares 2414 55.; for the 40/. shares, 54
paid, 63/. 53. per share ; for the 301. shares, 151. paid,
57/. 155. per share; for the 15/. shares, 1/. 103. paid, 241.
3s. 6d. per share. Mr. Hudson then told me to mark
the shares named in the first lot in the journal, below
Mr. Plow's estim ite, viz. of-
-151 £lOO shares, amounting to £36,243 0 oat £240 0 0 per slim.
312 40 21,631 10 Oat G 3 5 0

91 30 9, 5,187 0 Oat 57 0 0
2,874 15 ft
67,539 0 Oat 23 10 0 „
I added the commission an the stamps of my Own ac-
cord, but Mr. Hudson was not aware of it. The money
was paid to Mr. Hudson's account at the York Union
Bank, the date of payment 27th October, '846; first pay-
ment, 81,1001. on the 27th October; second payment,
27th November, 50,767 L. 9s. 3d., which closed the ac-
count. Mr. Hudson came to me some time in the month
of January last, and stated to me that, as times were so
materially changed, in making up the accounts of the
I Great North of England Purchase, I mast deduct any
profit ho had received on that transaction. He after-
wards said, before I had the accounts made up, that he
had reconsidered the matter, and that the account was
not to be altered, in consequence of his having advanced
out of his private account a sum cf upwards of 16,0001.
on behalf of this company, in the parchase of West
Durham shares, for which he had no sanction of the
proprietors. And on the 19th February last, being the
day before the meeting, Mr. Hudson came to me, and
said he %vat. sure there was something wrong in the ac-
count of the 151. shares. That I was to debit his account
with IL (one pound) per share uncalled on the 151. shares
on the 2,874 shares which he had sold to'the company,
and that after the meeting he would go into the account
with me. I wish to acid, that Mr. Hudson delivered to
the company two Great North of England 1001. shares,
which were not paid for until the 9th of October, 1847,
beine the time when I found out the mistake. as they'