Scottish Court of Session Decisions

The Companies Act 1862 (25 and 26 Vict, cap. 89), sec. 50, enacts—“ Power to Alter Regulations by Special Resolution.—Subject to the provisions of this Act, and to the conditions contained in the memorandum of association, any company formed under this Act may, in general meeting, from time to time, by passing a special resolution in manner hereinafter mentioned, alter all or any of the regulations of the company contained in the articles of association, or in the table marked A in the first schedule, where such table is applicable to the company, or make new regulations to the exclusion of or in addition to all or any of the regulations of the company; and any regulations so made by special resolution shall be deemed to be regulations of the company of the same validity as if they had been originally contained in the articles of association.…”

On 18th December 1908 Arthur Francis Whinney, liquidator of W. & A. M'Arthur Limited, presented a petition, under sections 35, 36, and 62 of the Companies Act 1862 (25 and 26 Vict. cap. 89), for rectification of the register of The Gulf Line, Limited, by removing therefrom the name of W. & A. M'Arthur (South Africa), Limited, as holders of 10,023 ordinary shares of £1 each fully paid, and substituting therefor the name of the petitioner.

The petition stated—That the … company known as W. & A. M'Arthur, Limited, London,… was registered in London, and is a distinct company from the limited company of W. & A. M'Arthur (South Africa), Limited, referred to below. That for certain good causes and considerations the said W. & A. M'Arthur (South Africa), Limited, on 13th February 1908, granted a transfer in favour of the petitioner of 10,023 ordinary shares of £1 each, fully paid … of and in the undertaking called The Gulf Line Limited, a company registered in Scotland.… W. & A. M'Arthur (South Africa), Limited, also hold 10,821 shares of £1 each, 3s. paid, of The Gulf Line, Limited, and unpaid to the extent of the remaining 17s.

On 29th May 1908 the petitioner wrote the secretary of the respondents stating that he was about to present for registration a transfer of said 10,023 shares. The respondents, on 1st June following, replied that they would not recognise said transfer owing to the calls on said 10,821 shares being in arrear, but that if the petitioner would pay the balance of the calls due, and give an approved guarantee for payment of the unpaid liability, then they would be prepared to recognise the transfer. The arrears amounted at that date to £541, 1s. On 3rd June following the petitioner wrote sending said transfer with relative certificate, and requesting registration.

On 5th June following, the secretary of The Gulf Line, Limited, acknowledged receipt of the transfer, but wrote informing the petitioner that, apart altogether from the fact that certain calls on the partly-paid shares in the name of W. & A. M'Arthur (South Africa), Limited, were in arrears, they could not accept the transfer, as in his letter of 3rd June enclosing the transfer and certificate the petitioner had stated that he had given valuable consideration for the shares, while the transfer was stamped as for a nominal consideration only. The respondents were not entitled, in terms of their articles, to refuse registration in respect of said unpaid calls, and petitioner claims that his rights in the matter are fixed by the presentation of said transfer on 3rd June 1908.

On the 9th of July 1908 the petitioner wrote for the return of the transfer so that he might have the stamp duty adjudicated, and stated that after this had been done he intended to take proceedings to enforce registration. The company, on the 11th July 1908, returned the transfer to the petitioner.

Meantime the Gulf Line, Limited, in the month of June, after the petitioner's transfer had been presented for registration, called a meeting of said company for the 25th of June 1908, for the purpose of passing a resolution altering the articles of association with the object of preventing a transfer being passed by a transferor, who is also a debtor of the company, by giving the company a lien on all shares of the company held by the member, whether fully paid or not.… The resolution was duly passed on said 25th June 1908, and a confirmatory meeting was called for the 11th of July 1908, when the said resolution was duly confirmed.

“The stamp duty on the transfer having been adjudicated upon by the Inland

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Revenue, and found to be correct, the transfer was again lodged by the petitioner with the respondents, on the 17th day of September following, and registration was again refused.”

The original article, No. 13 of the articles of association of The Gulf Line, Limited, was in these terms—“The company shall have a first and paramount lien and charge on all the shares not fully paid, registered in the name of a member, whether solely or jointly with others, for all calls due on such shares.”

The substituted article was as follows—“The company shall have a first and paramount lieu and charge on all the shares registered in the name of a member, whether solely or jointly with others, for all calls due on any shares registered in the name of such member, and for all his debts, liabilities, and engagements, solely or jointly, with any other person to or with the company, whether the period for the payment, fulfilment, or discharge thereof shall have actually arrived or not, and such lien shall extend to all dividends from time to time declared in respect of any shares registered in the name of such member.”

Answers were lodged for the Gulf Line, Limited, in which, after admitting generally the petitioner's averments, they submitted “that in terms of article 13 of their articles of association, as amended by special resolution, dated 25th June, and confirmed 11th July, both in the year 1908, they were entitled to refuse to register the said transfer so long as the said W. & A. M'Arthur (South Africa), Limited, were indebted to them.”

The petitioner argued—The two companies of W. & A. M'Arthur, and W. & A. M'Arthur (South Africa), were distinct and separate, and further, the transfer which the respondents had refused to register was a transfer not by one company in favour of the other, but one in favour of the liquidator of the other, who of course represented the creditors and not the shareholders. The transfer was admittedly onerous, and effectually transferred the shares to the petitioner—Companies Act 1862 (25 and 26 Vict, cap. 89), section 22. The petitioner had therefore, when his transfer was presented for registration, a legal right to be entered on the register— Société Générale de Paris v. Walker (1885), L.R., 11 A.C. 20, per Lord Selborne at p. 28, Lord Lindley cited per Lord Blackburn at p. 40. If the pursuer had at the time registration was asked, a right to be entered on the register, that right could not be defeated by any subsequent liability sought to be attached to the shares— In re Cawley & Company (1889), L.R., 42 Ch. Div. 209, per Esher, M.R., at p. 227; Bradford Banking Company v. Briggs (1886), L.R., 12 A.C. 29.

Argued for the respondents—Where a company altered its articles of association, the alterations must be held to have come into force when the company was formed—Companies Act 1862, section 50. A shareholder in a company took his shares subject to any alteration which might be so effected— Andrews v. Gas Meter Company, [1897] 1 Ch 361; Allen v. Gold Reefs of West Africa, Limited, [1900] 1 Ch 656. The petitioner here was not a distinct and different person from the transferor, and was therefore subject to the same liability. Further, a transferee did not become a shareholder till he was entered on the register, and in accepting a transfer took the risk of alteration in the articles of association before registration— Pepe v. City and Suburban Permanent Building Society, [1893] 2 Ch 311; Moir v. Duff & Company, July 20, 1900, 2 F. 1265, 37 S.L.R. 935, per Lord Trayner at p. 1272, p. 941.