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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Blaikie and Others v. Coats and Others (The British Mexican Railway Co.) [1893] ScotLR 31_115 (21 November 1893)
URL: http://www.bailii.org/scot/cases/ScotCS/1893/31SLR0115.html
Cite as: [1893] ScotLR 31_115, [1893] SLR 31_115
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SCOTTISH_SLR_Court_of_Session
Page: 115↓
Court of Session Inner House First Division.
v.
Facts:
Section 35 of the Companies Act of 1862 provides that “If the name of any person is without sufficient cause entered in or omitted from the register of any company under this Act… the person or member aggrieved, or any member of the company, or the company itself, may, … as respects companies registered in Scotland, by summary petition to the Court of Session, or in such other manner as the said Court may direct, apply for an order of the Court that the register may be rectified.” …
A petition was raised under this section by certain shareholders in a company craving the Court to order that the register of the company should be rectified by deleting therefrom the names of certain shareholders, in respect that their shares had been illegally allotted to them as promotion money. The respondents pleaded that the questions at issue could not be competently raised by a petition under the section.
The Court, without expressing a decided opinion as to the competency of the application, held that petition under the section was a very inappropriate and inconvenient way of dealing with the questions raised, and that the proper course for the petitioners was to raise an action of reduction in ordinary form, pending the raising of which the petition should be sisted.
Opinion by Lord M'Laren that section 35 was not intended to create a substitute for the ordinary forms of pro cedure in cases where there was a strong divergence between the parties as to facts.
The petitioners John Blaikie, Leadenhall Street, London, James Moore Dickey, St Enoch's Hotel, Glasgow, and William Niven, St James Terrace, Glasgow, were shareholders in the British Mexican Railway Company, Limited, which was regis tered under the Companies Acts upon 22nd August 1892. The objects of the company, as set forth in the memorandum of association, were to “adopt and carry into effect, with or without modification, an agreement dated 11th May 1892, entered into and made between James Moore Dickey … as representing and on behalf of the Chihuahua Eastern Railway Company …and Charles Knight, Rutherglen, on behalf of this company.”
Under that agreement the company
Page: 116↓
were to purchase from the Chihuahua Company certain concessions, rights, and subsidies granted to them by the Mexican Government for the construction of a railway in Mexico. The price to be paid to the vendors was £300,000, which was to be satisfied by the allotment to them of 30,000 fully paid-up shares of £10 each. It was provided by article 4 of the articles of association that the capital of the company should be £310,000, divided into 31,000 shares of £10 each. The allotment of shares was made on 20th March 1893. Though the said agreement bore upon the face of it that the consideration to be given to the vendors should be £300,000, it was arranged that the real price to be paid them should be only £171,000, the balance of 12,900 shares being alloted to the respondents Archibald Coats, George Coats, James Adam, Neil Buchanan, and James Hamilton Dunn.
The petitioners having acquired shares in the company, raised this petition in order to have the register rectified by deleting therefrom the names of the respondents as holding the above shares. They averred that the transaction was an illegal one, that the respondents were the real promoters of the company, and that the shares had been handed over to them as promotion money, and that they had thus acquired a benefit at the expense of the company and the other shareholders, having obtained the shares without any consideration. The petitioners did not ask to have the names of any other persons placed upon the register as holders of the shares, but that the shares should be regarded as unissued capital in the hands of the company.
The respondents lodged answers to the petition, in which they denied that they were in any sense promoters of the company, and alleged that they had given good consideration for the shares in question. They pleaded that the petition was incompetent, that the petitioners' statements were irrelevant and unfounded in fact, and that they had no title to sue.
Section 35 of the Companies Act of 1862 provides—“If the name of any person is without sufficient cause entered in or omitted from the register of any company under this Act, or if default is made, or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member of the company the person or member aggrieved, or any member of the company, or the company itself, may, … as respects companies registered in Scotland by summary petition to the Court of Session, or in such manner as the said Court may direct, apply for an order of the Court that the register may be rectified, and the Court may either refuse such application with or without costs, to be paid by the applicant, or it may, if satisfied of the justice of the case, make an order for the rectification of the register, and may direct the company to pay all the costs of such motion, application, or petition, and any damages the party aggrieved may have sustained. The Court may in any proceeding under this section decide on any question relating to the title of any person who is a party to such proceedings to have his name entered in or omitted from the register, whether such question arises between two or more members or alleged members, or between any members or alleged members and the company, and generally the Court may in any such proceeding decide any question that it may be necessary or expedient to decide for the rectification of the register.” …
Argued for petitioners—This was a competent case to be dealt with by petition under the 35th section. It was not so complex as to prevent its being tried in a summary way, but was one of the alternative cases mentioned in the section to which it was intended to apply. The case of ex parte Shaw, 2 Q.B. Div. 463, showed it was in the discretion of the Court to decide whether a petition between members and alleged members could be dealt with in this summary way. The only cases where this procedure was not applicable—as shown by the English decisions—were those in which specific performance was asked, or which were considered more suitable to be tried before a jury— Askew's case, L. R., 9 Ch. 664. Moreover, in England the process was a more informal one, being tried in Chambers, where it was not possible to dispose of such difficult and complicated questions. The limits assigned to the operation of the section by Lord Cairns in Ward & Henry's case were too narrow, and were adversely criticised in ex parte Shaw, and the section was given a wider scope. The company could compel the respondents by an action to restore the shares, and the petition was a shorter method of bringing about the same result, which caused no injury to the respondents. They were not called upon to pay any damages, but merely to have their names removed from the register, and so this case was distinguished from the English cases, in which similar procedure was not allowed. The Courts in Scotland had dealt in this way with cases for the rectification of the register— Klenck v. East India Company, December 21, 1888, 16 R. 271; Chambers v. Aerated Bread Company, July 3, 1891, 18 R. 1039. Nor was it excluded because the shares were fully paid up— Denton Colliery Company, L.R., 18 Eq. 16. The remedy was an appropriate one, because the challenge had been made instantly on the discovery of the fraud, before the transference of any of the shares by the respondents, which were therefore merely in the position of unissued capital. No certificates had been issued, and all that it would be necessary to do would be to delete their names from the register. There were dicta of judges to the effect that this was the appropriate remedy when the circumstances were suitable— Carling's case, L.R., 1 Ch. Div. 115; M'Kay's case, L.R., 2 Ch. Div. 1; Pearson's case, L.R., 5 Ch. Div. 336; at 341; Anderson's case, L.R., 7 Ch. Div. 75, at 94; Weston's case, L.R., 10 Ch. Div. 579,
Page: 117↓
Nant-y-Glo Iron Company, L.R., 12 Ch. Div. 738; Metcalf's case, L.R., 13 Ch. Div. 169; Buckley on the Companies Acts, p. 98. Argued for respondents—This case could not be competently raised in the form of a petition under the 35th section. The section was in the second part of the Act, which dealt entirely with the preparation and keeping up of the register, and Lord Cairns was right in holding that the scope of the section was limited to affording a summary method for keeping right the company's register— Ward & Henry's case, L.R., 2 Ch. 431, at 441. There was no case in which promotion money had been recovered by this procedure. The proper course for the petitioners to take was to raise an action of reduction, with a petition ancillary to it, and following on its decision. This was the customary procedure, and was adopted in the case of Howe v. City of Glasgow Bank, July 4, 1879, 6 R. 1194. This was not a case for summary procedure, involving as it did questions of fraud which could only be fairly dealt with by an action raised in the ordinary way, with a proper record. It did not fall under the section, which presupposed that names were wrongly on the register, while here it was admitted that, taking the contract as stood, they were rightly on it. The cases of Shaw and Klenck, founded on by the petitioners, were really in favour of the respondents, for in both cases the procedure was only allowed by the Court because all parties agreed in wishing for it.
Arguments were also submitted on the questions of title and relevancy, but as they were not considered by the Court, it is unnecessary further to refer to them.
At advising—
Now, when the right of the party claiming to be put on the register or to be taken off depends on written documents—it may be on a contract to take shares or a contract to transfer shares, or upon the ques tion whether the directors have the power to decline to accept a transferee, or any other consideration which admits of instant verification from documents—it has undoubtedly been the practice to dispose of such questions under an application presented in terms of the 35th section. We have had cases also under that section that depended on proof—I think only where the proof did not involve matter affecting the constitution of the company—especially where, as in the case of the Aerated Bread Company, no interest except that of the shareholder making the application was involved. But while I agree with Lord Adam that the terms of the 35th section are so comprehensive that we should have jurisdiction to entertain and determine the merits of this case in the present application, yet that jurisdiction is not meant to be substituted for the ordinary jurisdiction of the Court where the matters in controversy depend upon fact, and raise questions extrinsic to the proper object of the petition—the rectification of the register.
Probably no precise line can be drawn between the cases that are suitable for disposal in a summary form and those which are more appropriate for trial by action of declarator or reduction, but the present case is clearly one which is unsuited for investigation in a proceeding under the 35th section. In the event of the petitioners' allegations being proved, they will doubtless have a right to have the register rectified, and while on that account they are probably entitled to have this petition kept alive in order that the correction may eventually be made, yet I think the facts set forth are such as can only be properly investigated in an ordinary action, and therefore this proceeding ought to be sisted, leaving the petitioners to seek redress in a different form.
Page: 118↓
The Court sisted the petition.
Counsel for the Petitioners— Ure—Cook. Agents— Simpson & Marwick, W.S.
Counsel for the Respondents— C. S. Dickson—M'Lennan. Agent— Murray Lawson, S.S.C.