March 6, 1906.]
1885, pursuant to Ordinance, the old company
egistered. Its capital was $125,600 divided Into 1,250 $100 shares. When the line was constructed there were only about 20 houses at the Peak, and in the first complete year of working, 1899, no dividend was paid, as was also the case in the two succeeding years. In 1892 it paid a dividend of two per cent and from then till 1933, when the Peak had steadily developed into a residential district by the enterprise of the old company, te dividend steadily rose from two per cent to its maximum, 20 per cent. In 1908 Mr. Smith, the promoter of the first scheme who had mean while sold out his interests in the old company, promoted a second scheme to run from Battery Path to Victoria Gap, at the same point on the Peak where the old line terminated. From Dec., 1903, until Sept, 1904, correspondence passed between the Company and the Government, in which the old Company strenuously urged that conditions should be imposed upon the new Company which would prevent the new line being merely competitive | with the old one and that it should be obliged to run to a different terminus at the Peak. Counsel then referred to the introduction of the Bill and remarked that at the second reading on the 3rd Novem- ber, Mr. Gershom Stewart, the seconder, suggested that the new line be obliged to run to a different terminus, and following this the Governor proposed that the old 'ompany should send in a formal petition setting forth their case. On the 12 h December, 1904, Mr. A. F. Smith applied to be heard by counsel in the Legislative Council, and on the 13th Decem- ber the petition, asking that conditions should be imposed as already stated, was sent in.
Mr. Pollock objected to the documents being put in, but
His Lordship asked if the application had not been postponed pending that action.
Mr. Sharp returned an answer in the affirmative.
His Lordship said he was afraid he could not exclude that.
Mr. Sharp then read corespondence from the Colonial Secretary, dated March, 1905, to the effect that the Government were not prepared to
insist on the adoption of that condition. The old Company had changed their policy of opposition to amalgamation. Although the Bill had only been read twice, it was clear that Mr. Smith had got his concession, and the Consulting Committee resolved in April to bring the scheme before the share Holders. Counsel then dealt with the notice convening the meeting and argued that it was ample in the circumstances. The resolu. tion in question was passed by a very large majority. Plaintiff and the other dis- sentients were pre. ent at that meeting and discussed the scheme in detail. Then at the second meeting the resolutions were confirmed by a large majority, the plaintiff again being present and discussing the scheme apon its merits. The price mentioned by the Con- sulting Committee was a fair one for the shares in the circumstances. Their reasons were those. News of the opposition scheme had at that time enormously effected the market. The New Tramway Bill was practically through and in consequence the shares had fallen greatly. In December, 19 4, the shares were quoted at $300, and in the same month they had fallen to $280 and $265. Immediately after the second reading of the Bill they showed a further decline. In January they were $240 and $230 and on February 22nd there was a sale t $200. In May, 1905, when it had become known that the old Company was going to adopt the scheme and that the amalgamation would be carried through, the shares slightly rose again. Another reason for considering the price offered a fair one was that in the opinion of the Consulting Committee if the scheme had gone through it would have been fatal to the old company. The new line would have its lower station in a more advantageous position near the hotels and in the centre of the town, and a part of the line was to go through a very populous district. This portion alone, it was estimated, would have made the opposition concern a paying one and would have enabled the Company to carry passengers above Conduit Road at fatal rates.
at
His Lordship If there was room for them.
CHINA OVERLAND TRADE REPORT. Mr. Sharp-Room for whom P
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of the winding up and it was within His Lordship Room for the passengers, the power of the liquidator even without Mr. Sharp Oh, yes; it was to have been a special sanction from the shareholders but double line. Continuing, he said the new line more so if he has such sanction to sell the would be more likely to pay because of new and undertaking. The liquidator under a volun- better stations, carriages and equipment. tary winding up was in a better position Furthermore it would have the benefit of the than an official liquidator acting under experience of the old Company and would have Court. Under such a winding up the minority ruined the old Company if it had been of shareholders would be obliged to fall in with permitted to run in opposition. Not the arrangement or have the option of taking only did the Consulting Committee but the cash or anything else for their shares. Proceed- majority of the shareholders considered the ing, he argued that the purpose of section 201 price a proper one, and out of 196 dissentient was under reconstruction · "schemes to assist shares 170 were bought between the 15th and shareholders who did not desire to join the new the 25th May, 1905. Those purchases were company and who would be compelled apart from obviously speculative and certainly no extra that section either to join the new company ordinary consideration was due to plaintiff and sacrifice their interests. There was no the other dissentients. In reply to his Lord-struction case coming within section 201 ship, counsel said if his Lordship came to the conclusion that the arrangement by the com- mittee and managers was not a bona fide one it would be his duty to set it aside. Continuing, he said that on the 26th June plaintiff sent his notice of dissent, the effect of which was a further acquiescence in the validity of the resolution, Counsel then read correspondence between plaintiff and the liquidators of the old Company, and said that negotiations between them having failed, the liquidators gare notice of their intention to carry the resolution into effect. Then, for the first time, on September 20th, the plaintiff's solicitor in reply suggested the invalidity of the resolution. On October 17th Mr. Smith's concession was assigned to the China Commercial Company. for $25,000 and on the day following the new Company was incorporated with a capital of $750,000. Then two agreements were entered into, but when the writ was issued the Govern; ment indicated that the third reading should be postponed till that action was decided. Having completed his recital of the foots, Mr. Sharp said he would deal with the law next day.
The Court then rose.
Tuesday, February 27th.
Mr.
The hearing of the action at the instance of D. E. Brown and others against the Hongkong High Level Tramway Company and Messrs. J. D. Humphreys and Son was resumed. H. E. Pollock, K.C., appeared for the plaintiffs. He was instructed by Mr. Geo. Hastings (of the office of Mr. John Hastings) in the interests of plaintiff and by Mr. C. D. Wilkinson on behalf of the other dissentients. Mr. E. H. Sharp, K.C., and Mr. M. W. Slade, instructed by Mr. Harston (of Messrs. Eweus, Harston and Harding), appeared for the defendants.
Mr. Sharp, resuming his address, said he proposed to deal with the law and reply to the points raised by the plaintiffs. Referring to the notice convening the meeting, which was said by the other side to be inadequate, they made two answers. If the transaction came under section 201 of the Company's Ordinance, it was enough that it should be indicated the section need not be named. Counsel read judgments in support of his contention, and said those showed that the notice would have been good if it had given notice that a resolution would be passed and that authority would be given to the liquidators to carry out the arrangement. Alluding to the action of the plaintiffs, he would not put it so high as to say that they meant to ruin the Company if they did not get the price they wanted for their shares. For three months plaintiff was prepared to treat the resolution as valid but finally he said-perhaps not in these words I have got this control over you: I will ruin you unless you pay me. His attitude was a threatening one with a view to getting his terms. While he admitted it was a small point, shareholders were to be taken to know the Ordinance under which his company subsists and his own memorandum of articles.
His Lordship remarked that the decisions recited yesterday showed that judges had different opinions as to whether shareholders should be held to know their articles.
Mr. Sharp then proceeded to argue that the transaction did not come under section 201 of their Ordinance but under 101 of their own regulations—the ordinary power of winding up. The sale of the undertaking was part
where the shareholder must take shares or nothing. The prima facie case was that the shareholders should get cash, but if he chose to move in the matter he would be allowed to take shares instead. If he does nothing he would get cash-$20, as in the present case The crucial question was this-could the present re-construction arrangement be carried out spart from the section? As he had pointed out in the cases read the arrangement permitted by the section could not be carried out apart from the section. Could this be? Clearly it could. The liquidator could have entered into an arrangement under which he sold the company out and out at a fixed price per share and that arrangement would have been binding on any dissentients-binding indeed upon the company. The case did not fall under section 161, and it followed that the dissentients had no right to arbitraté. With regard to the second point raised in the statement of claim that the notice did not sufficiently indicate the scheme, he would say that what was required was that a notice should show the general nature of the business to be considered. It must not be read strictly but, as many cases said, in the way that an ordinary business man would
His Lordship-The notice seems to give a general idea that the company is going to bt re-constructed, but the agreement does no. seem to carry out the idea of re-construction The old company is to be sold to the new com- pany. The difficulty in my mind is that there is no re-construction that I can see. The liquidators are merely to sell the old undertaking to the new company and the new company is to be an independent body with, an independent capital. Re-construction is turning the old company into a new one. I cannot see in this agreement anything about capital.
Mr. Sharp-That is a point I am coming to; I will explain what is re-construction.
His Lordship That is getting back to the old point that the notice does not give sufficient information as to how the scheme is
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to be carried out.
Mr. Sharp--If your Lordship will allow me to go on with my argument and then ask me for information for any points it will, I think, ba better. An essential feature of re-construction is the winding up of the old company. Then the new company is formed for the purpose of carrying on the other undertaking of the old company and usually for another purpose, as well.
His Lordship-I cannot 600 that in the agreement.
Mr. Sharp-It acquires the old company's business.
His Lordship-I cannot 800 how it acquires it. It is now merely a sale of the old- company to the new one.
Mr. Sharp --Yes, for the purpose of carrying on the work. The old is wound up and sold to the new.
After tifin,
Mr. Sharp said that, according to Buckley, re-construction bore no fixed technical mesning, but the most essential part of a re-construction was the formation of a new company to take over the assets of the old one.
His Lordship asked if it were possible to have a re-construction without section 161. In Palmer it was laid down that there were the follow- ing modes of re-construction. The first was by special not of Parliament, the second by means of a sale sanctioned by the Court, and the third by a voluntary winding up and proceeding under section 161; the fourth by means of an exchange of shares followed by a voluntary