respect. He is not a permanent officer. He is elected for a limited period at a fixed fee, and he goes out of office at the end of that period.

The duty rests upon the auditor to investigate the manner in which the business of the Company has been transacted, and to report thereon to the shareholders. It is no part of his duty to prepare the balance-sheet. His duty only commences when the balance-sheet has been prepared and approved of by the directors at a board meeting. There is nothing, however, to prevent the same person who is auditor being employed by the directors to prepare a balance-sheet; but in so doing the person employed is not acting as auditor, but as a professional accountant.

The first duty of an auditor is to ascertain precisely the Acts under which the particular Company is incorporated, to make himself familiar with their provisions so far as regards audit, and to have before him a copy of the Articles of Association or deed of incorporation of the Company. It is then his duty to see that the books have been kept in the manner directed by the Company, and that the forms of accounts as submitted agree therewith. It is his duty in auditing the accounts not to confine himself to verifying the arithmetical accuracy of the balance-sheet, but to inquire into its substantial accuracy, and to ascertain that it contains the particulars specified in the Articles of Association, and is properly drawn up, so as to give a true and correct representation of the state of the affairs of the Company.

An auditor is, however, not an insurer. He does not guarantee that the books do correctly show the true position of the Company's affairs. He does not even guarantee that his balance-sheet is accurate according to the books of the Company. All that the auditor is bound to do is to exercise reasonable skill and care in the preparation of his report. Where suspicion is aroused, more care is obviously necessary; but still an auditor is not bound to exercise more than reasonable care and skill even in a case of suspicion, and he is

perfectly justified in acting on the opinion of an expert, where special knowledge is required. Auditors, although it is no part of their duty to take stock, are not entitled to rely on the manager's certificate if an ordinary careful examination of the books ought to have made them suspect the truth of it. The position of an auditor has thus been summed up: "An auditor is not bound to be a detective, or, as was said, to approach his work with suspicion, or with a foregone conclusion that there is something wrong. He is a watch-dog, not a bloodhound. He is justified in believing hired servants of the Company in whom confidence is placed by the Company. He is entitled to assume that they are honest, and to rely upon their representations, provided he takes reasonable care. If there is anything calculated to excite suspicion, he should probe it to the bottom, but in the absence of anything of that kind he is only bound to be reasonably cautious and careful.”1 In one case an auditor presented a confidential report to the directors, calling their attention to the insufficiency of the securities on which the capital of the Company was invested, and the difficulty in realising them; but in his report to the shareholders he merely stated that the value of the assets was dependent on realisation; and in the result the shareholders were deceived as to the condition of the Company, and a dividend was declared out of capital and not out of income. The Court held that the auditor had been guilty of misfeasance under sec. 10 of the Companies Winding-Up Act, 1890, and was liable to make good the dividend paid.2

Audit of Accounts of Banking Companies. In the Companies Act of 1879,3 special provision is made for the books of banking Companies registered under the Act as limited Companies being at least once in every year examined by an auditor or auditors. It is not the duty of the auditors under this

1 Per Lopes, L. J., in Kingston Cotton Mill Co., No. 2 (1896), 2 Ch. at p. 288. 2 This Act does not apply to Scotland; but it is thought that if loss directly arise through the negligence of the auditor, he would in Scotland be responsible at common law.

3 For Act see Appendix, and sec. 7 of Act for regulation as to audit.

Act to consider whether the business of the bank is prudently or imprudently conducted. It is their duty to consider and report to the shareholders whether the balance-sheet exhibits a correct view of the state of the Company's affairs, and the true financial position of the Company at the time of the audit. They must ascertain this by examining the books of the Company, and must take reasonable care to see that what they certify as to the Company's financial position is true. Except in very special cases, it is their duty to place before the shareholders the necessary information as to the true financial position of the Company, and not merely to indicate the means of acquiring it.

LAW AGENT. One of the unavoidable evils attending the conduct of business is the employment of a law agent to advise in cases requiring legal knowledge. The law agent appointed is not an officer of the Company within the meaning of sec. 165 of the Act of 1862.

In the ordinary case where

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a solicitor is employed to act for a Company, the directors are not bound to employ him for all their law work. any time discharge him or cease to send him work. part company as and when they please. The remuneration of a law agent is not a salary paid to him as an officer of the Company, but the ordinary remuneration which, according to the well-established table of fees, he is entitled to demand either from a Company or a private individual who is his client. With regard, however, to professional services rendered before the formation of a Company, or in connection with its flotation, a solicitor has no legal claim against the Company, and that notwithstanding the fact that in the Articles of Association provision is made for the promotion expenses being paid by the Company. The reason for this is that the Company had no legal existence when the services were performed, and consequently could not employ anyone. The claim for such services is against the promoters, or the persons who employed the solicitor, unless the Company after incorporation adopts the actings of the promoters in the employ

ment of the solicitor. In the event of any dispute as to the amount payable, the account should be submitted to the Auditor of the Court of Session for taxation.

Although a person may be nominated as solicitor in the Articles of Association, this of itself gives him no right of action against the Company should the directors subsequently decline to employ him.1

Law Agent's Lien.-Like as against all other clients, a law agent has a general lien over the documents belonging to the Company which come into his hands in the course of his business. This right of lien is merely a right to keep back from his client the deeds and papers which he holds as law agent until his account for professional services is satisfied. It confers no active right on the law agent, but resolves into the inconvenience which a client may suffer from being deprived of the evidence of his right as creditor or proprietor.

No right of lien can be created by the directors or anyone else in favour of the law agent over the share register of the Company. The Act of 18622 provides that the register of shareholders is to be kept at the offices of the Company for the purposes there mentioned, and that being so, no one has power to deal with it in such a way as to interfere with these purposes. The minute book is in a similar position. Again, documents which come into the hands of the law agent after the presentation of a petition for winding up are not subject to lien; but it has been decided that documents relating to allotment of shares, which come into the hands of the law agent before the presentation of a petition for winding up, are subject to lien. As to preference of lien of law agent over debenture-holders, see Brunton v. Electrical Engineering Corporation, 1892, 1 Ch. 434.

After a winding-up order has been pronounced, the former solicitor of a Company can be compelled to produce documents belonging to the Company in his hands over which he has

1 See p. 20.

2 Sec. 32.

3 In re Capital Fire Insurance Association, 1883, 24 Ch. D. 408.

a lien.

Such production is, however, without prejudice to the lien of the law agent.

The law agent of a liquidator has no lien over the papers belonging to the Company which come into his hands. The liquidator cannot himself acquire a right of lien over the documents, and consequently he cannot, by contract or otherwise, confer any such right on another. Again, a liquidator, apart from special contract, is not personally liable to the law agent for expenses incurred; but when money is recovered and received by the law agent, he is entitled to deduct his account therefrom. Further, law expenses, properly incurred, are payable preferably to the unsecured debts.

BANKERS OF THE COMPANY.-A banker is not an officer of the Company within the meaning of sec. 165 of the Act of 1862.1

Liability of Bank for Name appearing on Prospectus.Almost invariably the name of a bank appears on the prospectus of a proposed public Company as the bankers of the concern. It has not yet been decided what, if any, liability attaches to the bank under the Directors Liability Act, 1890,2 for mis-statements in the prospectus. The position and possible liability of a bank, in any particular case, must necessarily depend upon the actual course taken by the bank in connection with the preparation and issue of the prospectus. The mere fact that the bank's name appears on the prospectus cannot establish liability, as whatever may be the meaning of the words "has authorised," in sec. 3 of the Act, it is plain that knowledge and consent, at least on the part of the bank, are essential elements. Nor, it is thought, would the Statute render a bank liable if the acts of the bank were limited to receiving from the Company as their agents for circulation copies of the prospectus after it had been prepared by the Company, and giving such copies out to customers or the public. What will establish liability against a bank under the Act has yet to be determined.

1 In re Imperial Land Co. of Marseilles, L. R. 10 Eq. 298.

2 For which see Appendix.