Scottish Court of Session Decisions

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69) enacts—Section 135—“The court having jurisdiction to wind up companies registered in Scotland shall be the Court of Session in either Division thereof, or in the event of a remit to a permanent Lord Ordinary, that Lord Ordinary during session, and in time of vacation the Lord Ordinary on the Bills.” Section 285—“… ‘The court’ used in relation to a company means the court having jurisdiction to wind up the company.”

John Grieve, 116 Vulcan Street, Port Dundas, Glasgow, pursuer, raised an action in the Sheriff Court at Kilmarnock against the Kilmarnock Motor Company, Limited, 91 Portland Street, Kilmarnock, defenders, wherein he craved the Court—“(1) To find and declare that the following resolutions were passed by the defenders on 25th August 1922 as extraordinary resolutions, viz.—‘That the company cannot by reason of its liabilities continue in business and that it is desirable to wind up,’ and ‘that Henry Smith, C.A., Bank Street, Kilmarnock, be and hereby is appointed liquidator of the company,’ and (2) To interdict the defenders from rescinding or deleting from their minute book the foregoing resolutions: And to grant interim interdict.…

The pursuer, who was the holder of 574 ordinary shares in the company and was its chairman, averred, inter alia—“(Cond. 2) For a considerable time the company's affairs have been embarrassed, and on 25th August 1922 at a meeting of the company duly convened the following resolutions were unanimously passed as extraordinary resolutions, the statutory notice that they were to be moved as such having been given, viz.—‘That the company cannot by reason of its liabilities continue in business and that it is desirable to wind up,’ and ‘that Henry Smith, C.A., Bank Street, Kilmarnock, be and hereby is appointed liquidator of the company.… (Cond. 3) The defenders have delayed to act upon the resolutions passed by them, and on 9th September 1922 notice was given by Mr A. C. Baird, solicitor, 102 Bath Street, Glasgow, secretary of the company, to all the members of the company that at a meeting of the company to be held on 21st September 1922 one of the items of business to be transacted would be a motion to rescind or delete from the minute book of the company the said resolutions.… (Cond. 4) The pursuer is interested in seeing that the resolution to wind up is proceeded with not only as a shareholder of the company but as a creditor of the company to the extent of £287, 10s. and as a party to an agreement between him and the company dated 20th June 1919, whereby the pursuer agreed to the defenders being sub-tenants of premises in Portland Street, Kilmarnock, of which the pursuer is principal tenant under a lease still current. The pursuer is the person liable to the landlord for payment of the rent due under the lease.”

The defenders averred, inter alia—“( Ans. 2) Admitted that the company's affairs were temporarily embarrassed. Quoad ultra denied. Averred that the said meeting of the company was not duly convened in terms of law; that the resolutions were not carried by a majority of the shareholders; and that the said resolutions were not confirmed by the shareholders.…”

The pursuer pleaded—“1. The defenders having passed valid resolutions to wind up and for the appointment of a liquidator, the pursuer is entitled to have it declared that such resolutions were passed by defenders. 2. The winding-up of the defenders having commenced at the date when the resolutions referred to were passed, the defenders cannot competently rescind these resolutions, and the pursuer is entitled to interdict as craved. 3. The defenders having notified their intention to consider motions to rescind or alter the resolutions referred to, the pursuer is entitled to interdict and to interim interdict as craved.”

The defenders pleaded, inter alia—“1. The action is irrelevant. 2. The action is incompetent. 3. No jurisdiction.”

On 13th December 1922 the Sheriff-Substitute ( W. J. Robertson) repelled the first, second, and third pleas-in-law for the defenders and allowed a proof.

Note—“The pursuer avers that on 25th August 1922, two extraordinary resolutions were passed by the company, in which he is a shareholder and of which he is a creditor. These were ( a) ‘That the company cannot by reason of its liabilities continue in business, and that it is desirable to wind up;’ and ( b) ‘That Henry Smith, C.A., Bank Street, Kilmarnock, be, and hereby

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is appointed liquidator of the company.’ He further avers that the defenders have not acted upon these resolutions, and that on 9th September notice was given the shareholders that at a meeting on 21st September one of the items on the agenda would be a motion to rescind or delete from the minute book of the company the aforesaid resolutions. He has thereon brought the present action for declarator that these resolutions were validly passed and for interdict of the proposed proceedings. The defenders set forth three preliminary pleas. Of these the plea to the relevancy was abandoned, and I repel it pro forma. The plea to the competency was argued to the effect that I could only pronounce a negative decree which would have no result as it would not force the defenders to do anything. This argument I unhesitatingly reject and repel the plea. The defenders' agent rested chiefly on his plea to the jurisdiction. He maintained that in terms of sections 135 and 285 of the Companies (Consolidation) Act 1908 such an action was only competent in the Court of Session; that the internal affairs of a company are statutory, and can only be dealt with under the statute; and that thus the jurisdiction of the Sheriff Court is excluded. He referred to sections 144, 164, and 193 as illustrating his contention. But I have come to the Conclusion that this is not sound. The proceeding which the pursuer is seeking to stay is not part of the winding-up process. It is outwith it, and hostile to it, and does not appear to be contemplated under any section of the Act, nor can I find any section of the Act which provides the pursuer with a statutory remedy. The pursuer seeks interdict of a threatened wrong which he says is ultra vires of the company; he says the threatened resolution is not a step in the winding-up. I think his view is sound as regards jurisdiction. It appears justified by the case of Lamberton v. The Kelvindale Chemical Company, Limited, and Another, 1910, 26 S. C. R. 123. The present case appears to me a fortiori of that cited. The defenders' agent conceded that if the threatened resolution is not a step in the winding-up, this Court has jurisdiction to try the question, and as I have above expressed my view that it is not so, I therefore repel this plea and allow a proof.”

The defenders appealed, and argued—The Sheriff Court having no jurisdiction to entertain it, the action was incompetent. The minute in question was not challenged and it was common ground that the resolutions complained of were passed at a meeting of the company. The company being thus, technically at anyrate, in liquidation, the only court which had jurisdiction in the matter was the court of the liquidation viz., the Court of Session—Companies (Consolidation) Act 1908. Any remedy that there might be for the present difficulty was to be found under the Act and not at common law. Counsel referred to the Companies (Consolidation) Act 1908 (8 Edw VII, cap. 69), secs. 71, 122 (2), 135, 144, 193, and 285, s.v. “The court.”

Argued for the pursuer—The pursuer was entitled to prevent any tampering with the company's minute book by coming to the Court and asking for declarator and interdict. As the Act did not furnish the pursuers with a remedy he was entitled in the circumstances to proceed at common law and to secure the reduction of the resolutions complained of. The following cases were referred to:— Crawford v. M'Culloch, 1909 S.C. 1063, 46 S.LR. 749; Lawson Seed and Nursery Company, Limited v. Lawson & Son, Limited, 1886. 14 R. 154, per Lord Shand at p. 158, 24 S.L.R. 144.