Scottish Court of Session Decisions

The Fife and Kinross Coal Company, Limited, was incorporated on 3rd February 1897 with a capital of £70,000, divided into 3,500 cumulative preference shares of £10 each, and 3500 ordinary shares of £10 each.

Article 36 of the articles of association of the company was in the following terms:—“The company shall always have a first and paramount lien on the whole of the shares of every member, for all debts, liabilities, or engagements, ascertained or contingent, of such member, solely or jointly with, or as surety for, any other person, to the company; and the board may not only refuse to register the transfer of any such shares if the transferrer is indebted to the company as aforesaid, but may, after six days' notice in writing, absolutely sell and dispose of, for behoof of the company, all or any of the shares of such debtor, and apply the proceeds, so far as the same extend, in discharge or satisfaction of such debts, liabilities, or engagements, or may hold the proceeds in security thereof; and upon such sale the board shall, without any further or other consent from the holder of such shares, transfer the same to the purchaser thereof; but subject always to the provision in article 30 as to members whose registered place of address is not in the United Kingdom. The said lien shall also extend to all dividends from time to time declared in respect of such shares.”

Article 42 provided—“The board may, in their sole discretion, decline to register any transfer of shares upon which the company

Page: 923↓

has a lien. In the case of shares not fully paid up, the board may refuse to register a transfer to a transferee of whom they do not approve. The board shall not be bound to assign any reason for declining to register a transfer.”

The vendors of the property which the company was formed to acquire, viz., Messrs Peter Harrower, Alexander Thomson, and Lewis Grant, had, by minute of agreement dated 27th January 1897, agreed to accept ordinary shares in the company in payment of the price, and had also bound themselves, jointly and severally, to “guarantee to the holders from time to time of preference shares to the extent of £35,000 in the company, full and timeous payment of all dividends due or that may become due during the three years from the date of allotment of the first of such preference shares that may be issued upon all such preference shares subscribed for and allotted so far as paid up.” The vendors also undertook to pay all expenses connected with the transfer of the property and the floating of the company.

In implement of this agreement Messrs Harrower, Thomson, & Grant executed a bond of guarantee dated 16th July and 8th September 1897, whereby “as individuals and as joint-adventurers” they bound and obliged themselves and their respective heirs, executors, and representatives, jointly and severally, “to content and pay to Sir James Alexander Russell, LL.D.,” and others, “and the survivors and survivor of them, and the heir of the last survivor, as trustees and trustee of the holders from time to time of said preference shares in said Fife and Kinross Coal Company, the sum of £1750 yearly for the period of three years subsequent to the 22nd day of February 1897, being the annual amount of £5 per centum per annum upon said 3500 preference shares of £10 each,” The bond was granted under the condition, first, that the said annual amount of 5 per cent. on said preference shares “shall only be prestable hereunder to the extent to which such dividends shall be due and payable during said period on said 3500 preference shares so far as paid up from time to time, and not met and timeously paid out of the free yearly and termly profits of said company during each respective year of said period;” and, second, that “the whole sums due and payable under these presents, and which may be recovered from time to time, shall be held by the said trustees or trustee, for and on behalf of all holders of said 3500 preference shares as their personal property for their respective rights and interests therein.”

Of the shares allotted to Alexander Thomson in payment of his proportion of the purchase price, 154 were registered in his name. These 154 shares were sold in January 1899 by the trustee on Alexander Thomson's sequestrated estates (Mr Thomson having died in the interval) to Miss Margaret Maclaren Stark, who requested the company to enter her name on their register as the holder of said shares.

The company having refused to do so, Miss Stark presented this application under secs. 35, 36, and 62 of the Companies Act 1862 (25 and 26 Vict. cap. 89), craving the Court to order the register of members of the Fife and Kinross Coal Company, Limited, to be rectified by entering therein her name as holder of the shares in question.

On 20th June 1999 the company lodged amended answers, in which they made the following averments—“By the minute of agreement above referred to, the vendors, the said Peter Harrower, Alexander Thomson, and Lewis Grant, agreed to personally guarantee the full payment of the dividends upon the preference shares, so far as subscribed, allotted, and paid up, for three years from the date of the allotment. The price payable to the vendors in terms of said minute of agreement was, as the said minute bore, paid in consideration, inter alia, of the said guarantee. 3500 preference shares were allotted to subscribers on 22nd February 1897, and of these shares £19,545 has been paid up on calls made and in anticipation of calls. The guarantee which the said Alexander Thomson granted as above mentioned is still current, and the respondent company maintains its right of lien upon the shares held by the said Alexander Thomson in respect thereof.… The respondent company submits that the averments in the petition are irrelevant, and that the company is entitled to maintain its lien on the said shares, and cannot be called on to register the petitioner's transfer.”

The petitioner argued that the company had no lien over the shares, inasmuch as the creditors in the obligation contained in the bond of guarantee were the trustees for the preference shareholders, and not the company— In re South Llanharran Colliery Company, L.R., 12 Ch. D. 503, referred to.

The respondents argued that they were truly the creditors in the said obligation, and therefore had a lien over Mr Thomson's shares until the period of three years expired.