Scottish Court of Session Decisions

The Companies Act 1862 (25 and 26 Vict. cap. 82), sec. 23, provides—“The subscribers of the memorandum of association of any company under this Act shall be deemed to have agreed to become members of the company whose memorandum they have subscribed, and upon the registration of the company shall be entered as members in the register of members hereinafter mentioned, and every other person who has agreed to become a member of a company under this Act, and whose name is entered upon the register of members shall be deemed to be a member of the company.” Sec. 30—“No notice of any trust, express, implied, or constructive, shall be entered on the register, or be receivable by the registrar in the case of companies under this Act, and registered in England or Ireland.”

The Galloway Saloon Steam-Packet Company was registered under the Companies Acts 1862 to 1886 as an unlimited company on 8th June 1886. The capital of the company was finally fixed at £44,000 in £10 shares. The amount of shares finally issued was 4316, and £6,17s. 6d. was paid upon them.

Upon 7th July 1891 the directors of the company, at a meeting attended by two (and a quorum) of the directors, who were registered individually and as possessing more than ten shares each, resolved to make a call upon the shareholders of £1 each, payable upon 1st August 1891. Andrew Wallace, solicitor, Leith, who held 804 shares, and was a director of the company, declined to pay the call. The company therefore brought this action for payment of £804. The articles of association provided, inter alia, “4…. At all general meetings the members shall have a right to vote in person or by proxy, such proxy being always a member of the company, and empowered by a proper mandate holograph of the granter, or duly attested according to the rules of the law of Scotland; and the votes of the members at said meetings shall be counted and valued, not per capita, but according to the number of shares held by each voter respectively, and a majority in point of value shall decide and determine every matter or question. In case any share or interest in this concern shall be held in the name of a company or firm, only one individual partner of that company shall be entitled to attend and vote at the general meetings, and to give proxy as aforesaid, whose name shall be entered in the books of the company as the ostensible holder, and no trustee on the bankrupt estate of a partner shall be entitled as such to attend any meetings or to vote by proxy at the same.” “6. The business of the company shall, as aforesaid, be conducted under the superintendence of the directors before named, any two of whom shall be a quorum, and thereafter of the directors who shall be named and elected by the company as hereinafter directed at the aforesaid stated general meetings, to be held annually on the last Monday of November, and every member holding ten shares of the stock of the company shall be eligible and may be elected a director.”

The defender averred—“The defender has recently learned … that none of those claiming to be directors, with the exception of the defender, are qualified to be directors. The whole shares standing in the said other directors' names truly belong to the said North British Packet Company or the North British Railway Company, and the said so-called directors have no beneficial interest therein, and are merely the nominees of the said North British Packet

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Company or the said North British Railway Company. The shares belonging to the said North British Packet Company or the said North British Railway Company are registered in separate names in order to enable the said companies to evade the provisions of article 4 of the Galloway Company's articles of association, so as to allow them to control the management and administration of the latter company. The North British Railway Company has put forward the North British Packet Company as nominal holders of said shares, because the North British Railway Company is not entitled to hold such shares. The North British Packet Company is entirely composed of partners who are shareholders in and nominated by the North British Railway Company, and the whole capital of said Packet Company is found and contributed by the North British Railway Company.”

The pursuers pleaded—“(1) The defender, in respect of the shares held by him and of the call thereon, is liable to the pursuers in the sum concluded for.”

The defender pleaded—“(3) The directors who claim to have made the said call not being qualified to act as directors or to make the call, the defender should be assoilzied.”

Upon 24th November 1891 the Lord Ordinary ( Wellwood) pronounced this interlocutor—“Allows the defender a proof of his averments in his statemeut of facts so far as not admitted, and to the pursuer a conjunct probation.”

The pursuers reclaimed, and argued—Proof here was unnecessary. The only question to be considered was, whether certain persons who had acted as directors of the company, and to whose actings in that capacity the defender objected, were in reality shareholders or not in the sense of the Companies Act. If they were shareholders, which was entirely a legal question, then it could not be denied that they held shares to qualify them for their position, and were legally appointed. The defender alleged that the North British Railway Company, either in their own right, or through the North British Steam Packet Company, had purchased all the shares of the company except those held by the defender, and had therefore acquired a predominating influence which they wished to exercise to the prejudice of the Galloway Steam Packet Company. It was, however, provided by the articles of association that if a company acquired any number of shares in this company they could only be represented by one person, who was registered as the “ostensible owner,” although it might be that the name of the company by whom he was appointed stood in the books as the registered owner of the stock in respect of which he voted. But that was not the true reading of the articles of association. A company limited in the sense of the Companies Act 1862, could not appear on the register of a company whose liability was unlimited as the holder of stock in its own name. The name of some nominee therefore of the unlimited company appeared upon the register of the limited company as the holder of the stock, and in that way if the unlimited company chose to divide its stock among a number of persons, all these persons could be appointed to the directorate if they each held the requisite amount of stock. In fact it was merely a company doing what it was admitted it was quite lawful for an individual shareholder to do. It had been decided in England and also in Scotland, that the name of a person who appeared on the register as holder of shares must be taken as the real holder, and no proof of his fiduciary character could be allowed— Bainbridge v. Smith, May 9, 1889, L.R., 41 C.D. 462; Muir v. City of Glasgow Bank, December 20, 1878, 6 R. 392. As regarded the possibility of a shareholder dividing his share among a number of people who had no beneficial interest in them— Pulbrook v. Richmond Consolidated Mining Company, August 6, 1878, L.R., 9 C.D. 610. The ostensible owner of the stock was the person whose name appeared upon the register as owner of a certain amount of stock, and not anybody who was put forward as the representative of a company. In a matter of internal arrangement the company was not entitled to go beyond the register of its own shareholders and find out in what capacity they really held the shares.

The respondent argued—The articles of association provided that if any company should become the purchaser of shares in the appellants' company, they should only have a representative in the company. He might be a director or not according as he held the proper qualification and was appointed to the office, but there could be only one representative. There was no injustice in this, because at a general meeting, as provided by the articles, one member could vote by having proxies and in that way get the real voting power of the company expressed. But it was different in the case of directors. If a company was registered as the holder of the shares, a certain person had to be put on the register as the nominee of the company, and he was the “ostensible owner” mentioned in the articles. The quorum who authorised the call were really nominees of the North British Railway Company. If the railway company were entitled to have a representative at all, they could only have one, and it did not appear that the director who authorised the call was the “ostensible owner.” It was admitted that a private individual could hold a number of shares and divide them among a number of his friends so as to increase his voting power without the assignees having any beneficial interest in the shares, but the articles of association of this company while admitting that possibility had guarded against the possibility of a company acquiring shares and doing the same thing. That was in fact the real meaning of the statements in the fourth article. The appellants were prepared to prove that the directors objected to had not a real qualification in the meaning of the articles of association.

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At advising—