The Sun.
London, England, 1859-08-23 00:00:00

CARRON IRON COMPANY.

The case of the Western Bank of Scotland has
hitherto figured as the most remarkable in commer-
cial jurisprudence; but the Glasgow journals now
furnish another which seems likely to rival it in
most respects, and greatly to excel it as regards the
period over which the revelations extend. The
Carron Iron Company has been among the most
flourishing institutions of Scotland, and it is from
success and not from failure that the scandal now
about to be inquired into has arisen. The concern
was incorporated in 1773, with a capital of £150,000,
in 600 shares of £250 each, fer the manufacture of
iron, and its principal works have been at Carron,
near Falkirk, with an agency in London. The
business has been conducted by a general manager,
who, according to the terms of copartnery, was
subject to the control of general meetings. For
nearly 40 years—that is, from 1786 to 1825—this
post was held by a Mr. Joseph Stainton. Upon
his death this person was succeeded by a
nephew, Mr. Joseph DaWson, while another
nephew, Mr. William Dawson, became assistant
manager. A third nephew and a cousin were the
agents respectively at Glasgow and Liverpool, and
a brother, Mr. Henry Stainton, was agent in
London. In 1850 Mr. Joseph Dawson died, and
Mr. William Dawson then assumed sole control.
This he still retains, and hence for 73 years the
family appear to nave had the establishment in
their hands. From these circumstances arises the
singular story which, through a process just insti-
tuted in the Scotch Courts, is presented to the
public. The company under their deed are allowed
to buy the shares of any retiring partner, and it
seems that the managers have steadily availed them-
selves of this faculty. From 1830 till 1851 the
Messrs. Dawson, it is said, have not permitted any
share to be purchased by any stranger or partner
other than a member of the families of Stainton or
Dawson, and the charge now is, that "by means
of false balances, abstracts and accounts, and a
general system of misrepresentation and conceal-
ment, the shareholders were kept in ignorance of
the true value of the stock, and were thus induced
to sell their shares at prices greatly below their
actual worth." Among others, in 1847, Colonel
Maclean was led to sell 20 shares at £7OO each,
Rnd he accordingly brings an action to have the
sale and transfer set aside, and to be reinstated in
possession on the ground that it was by false and
fraudulent pretensions that they were obtained
from him. In his " summons," or bill of complaint,
which, it, must of course be borne in mind is as
yet entirely ex parte, he alleges as follows :
Although the provisions of the deed required
the appointment of committees for the examination
of accounts, no such committee has been appointk,d
since 1813—half-yearly balance-sheets were made
out., but in these the annual profits and the assets
were systematically put down at far less than their
proper amount. Thus in the ten years from 1829
to 1838 there were, it is averred, under-statements
to the extent of £175,119, the profits being repre-
sented as £118,925, instead of £294,543. Mr.
Joseph Dawson used to send to Mr. Henry Stain-
ton, the agent in London and brother of Mr. I)aw-
son's predecessor in the management, "trial balance-
sheets " which were correct, and these were then
altered and adjusted to meet the object in view.
In 1826 Mr. Joseph Dawson, it is alleged, wrote
to his " dear uncle" that the balance then pre-
pared showed profits amountinc,. to £15,085. This,
he said, " we propose to reduce by transferring
£2,500 from flask goods to pig iron, and reducing
the value of the pig iron inventory to that extent ;
also by diminishing the inventory of flask goods
£l,OOO, and by transferring £l,OOO from general
charges to the credit of timber, and deducting that
amount from the timber inventory." The total
was thus brought down to £10,075. Butthe writer
went on to suggest as this sum was " still rather
too much," that it might by certain dealings with
the " insurance accounts" be subjected to a further
diminution of £1,500. In reply, Mr. Henry
Stainton, the uncle, is quoted to have observed that
he would rather not touch the insurance accounts,
as some of the partners had their eyes upon
them, and that he would " prefer operating upon
the flask goods." There was -also a fund
in London, known only to Stainton and the
Dawsons, called the " Secret Reserve Fund," which
amounted in 1838 to £77,792, and which is described
to have been chiefly accumulated by debiting cer-
tain consignments of military stores from Carron to
the Board of Ordnance in London with breakages
which had never occurred. These breakages went I
sometimes to the extent of 25 per cent., and Mr.
Henry Stainton delivered to the Board of Ordnance,
and received payment for the whole pantity sent,
but remitted to Carron only the supposed proceeds of
the unbroken goods. Thus things continued appa-
rently until 1850, when Joseph Dawson died, and
William Dawson succeeded to the control at Car-
ron, while Henry Stainton remained as agent in
London. Dissension, then, for the first time broke
eat between the families of Stainton and Dawson.
William Dawson, being manager, called upon Henry
Stainton to account for the London fund. Stainton
admitted its existence, and handed over £96,000 to
the company. He died shortly afterwards, and the
company made a claim on his executors for short-
comings, which was compromised last year by a
payment of the enormous sum of £220,000. Whe-
ther it is from these family feuds that the outside
shareholders, or those who were formerly share-
holders, gained an idea of the transactions now re-
counted, and which form the subject of the present
action, does not appear, but it may be surmised
that such was the case. For three-and-twenty
years, according to the narrative of Col. Maclean,
some of them have been vainly endeavouring to
get information. A Mr. Romanes, in particular,
used active efforts, but was always defeated. The
parties were aware of his aim, and in 1826 Stainton
wrote to William Dawson. while sending in a cer-
tain account, "It may serve to amuse Romanes,
and can do no harm in any way." At a later
period William Dawson wrote to Stainton that to
comply with all Romanes' demands would " cause
endless trouble and no little mischief ;" that he had
better reduce his balance at the Bank of England
lest it should attract the notice of their "enemies ;"
and that a certain sum had been kept back in order
that their " greedy partners" (the shareholders)
might not suppose they had so much cash in hand.
Sir James Gibson Craig, then law agent of the com-
pany, strenuously advised that Romanes and the
others should be furnished with the information
desired, and in 1846 he again warned the manager
at Carron of the illegality of his proceedings, pro-
testing at the same time agaiust one of the share-
holders—a Miss Adie—being allowed to sell her
stock to the company in total ignorance of its real
value. " The account made up," said Sir James,
in a private letter to Dawson in 1846, " does not
disclose the state of the company's affairs, but con-
cells it. The debts due are overstated by £130,000.
The assets are understated to a much larger
amount. No one who is not a managing partner
can have the least idea of the value of the stock,
and I therefore think it jllegal in any managing