March 19, 1906.]
His Lordship-Yes. And further, after care- fully reviewing all the authorities cited, section 161 is the legal machinery provided for re-con- struction and that the shareholders cannot be deprived of it. I don't know what effect these will have, but these are the points in my mind. There is a further point that the option of re- investing the sale price of the shares, that is | $200 per share, differs only imperceptibly from the option of buying the remaining shares of the new company. Again, there is another point on which I am not clear-Why are not the shareholders entitled to the same full particulars and notice of contract as they would be entitled if the prospectus of the new company had been issued ?
Mr. Blade, addressing the Court, submitted that the plaintiff had failed to prove any single one of the allegations in the state ment of claim which defendants denied. It was perfectly clear that the old company was not under obligation to pay $25,000 to Mr. Findlay Smith or anybody else. Neither were the resolutions ultra vires. He contended that the notice was valid because it contained the required statement of business to be tran- saoted and setually gave the words of the resolution to be proposed. The circular, which wocompanied the notice, gave a sketch of the proceedings and certainly was not of a deceptive na ure. Any business man reading the notice would understand that the company was to cease to exist and a new company was to be formed to carry on the same business. In other words, it was re-construction. The sole practical question which the share- holders had to depide at that meeting was whether or not the price offered was adequate,; the other resolutions were machi- nery for carrying it out. Taking the resolutions as they stood there could not be any doubt as to what it was proposed should be done at that mesting Dealing at length with the question of the general managers' power to sell the pro- perty of the company, he asserted that the company could not sell the individual shares but only the corporate property. They had sold it for a price which worked out at $200 per share.
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The hearing was again adjourned.
Tuesday, March 13th.
IN ORIGINAL JURISDICTION.
BEFORE SIE FRANCIS PIGGOTT (CHIEF JUSTICE).
THE PEAK TRAMWAY LITIGATION.
The hearing of the action at the instance of D. B. Brown and others against the Hongkong High Level Tramway Company and Messrs. J. D. Humphreys and Son was resumed. Mr. H. E. Pollook, K.C., appeared for the plaintiffs. He was instruoted by Mr. Geo. Hasting (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. Ewens, Harston, and Harding), appeared for the defendants.
His Lordship at the outset said there was o point which wanted unravelling. The argument had been that it was not a re-construction, but a sale-rather that it began with an absolute sale.
Mr. Sharp-No, my Lord. I must ask your Lordship to stop there. It is an absolute sale. I am not prepared to admit that a sale cannot be described as a re-construction. If your Lordship limits the restriction to that in the Home Act then it is by no means re-construction. The proper legal word is sale, but I cannot help thinking it is with propriety described as even amalgamation or re-construction.
His Lordship Why I asked the question was this. When Mr. Ewene was in the box you rather emphasised his view of the word re- construction.
Mr. Sharp-As Mr. Ewens was the draughts- man who used the word I think it perfectly right that he should give his meaning of it.
Mr. Slade then stated that before his Lordship had come into Court both sides had come to the conclusion that certain scraps of evidence should be before the Court, and they had agreed, with his Lordship's permission, to put them in by consent. The other side put in a statement
CHINA OVERLAND TRADE - REPORT.
showing the details of receipts, profits, expenses, distribution, etc., of the old company for the years from 1900 to 1904, while they (plaintiffs) wish ed to put in a statement showing that at the first meeting there were seven dissentients holding 271 shares and at the second meeting there were five dissentients holding 196 shares. The plaintiff on 16th May, 1905, became registered in respect of 50 shares. Mr. Goddard was registered in respect of 25 shares. Mr. Moir, who beld one share on 16th April, had 50 on 16 h May. Mr. Cameron bad 25 on the 16th May, and Mr. Ram had 45 shares on the 25th May, 1905.
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A discussion ensued as to the extent to which negotiations had proceeded between the Govern- ment and the new company. Mr. Pollock said the defendants suggested they had the approval of the Government, but Mr. Sharp disclaimed any such idea, and it was decided to note that no statement would be made as to how far the negotiations had gone.
Mr. Blade (resuming)-We will give an undertaking not to transfer the property to the new company until the approval of the Gover- nor in Council has been obtained.
His lordship-But you could not (laughter). Mr. Sharp-We know we can't, but we are prepared to give the undertaking.
Mr. Slade-I would call your Lordship's attention to the offer we made in the very beginning of the case, nam ly, to arbitrate the value of the plaintiffs' shares.
His Lordship-Yes, I should like you to deal with that point.
Mr. Slade -We offered to arbitrate the value of the plaintiff's shares, and we repeat that offer now. We are willing now to arbitrate, as a matter of right,
His Lordship-You deny the right? Mr. Polllock-And allow it'
Mr. Slade-We deny the right.
His Lordship-But you are fighting the right. Mr. Slade Yes. All substantial relief on that point they could have had for the asking.
Mr. Blade then dealt with the points raised by his Lordship. With regard to the first that that was a compulsory sale of shares for cash which was inconsistent with a re-construction scheme, he would submit that that was not a sale of shares, because the sale of shares would mean the existence of two companies side by side That was not so in the present case. What was sold was not the interests of the share. holders in the property but the property itself. Those were very different things.
His Lordship-Bat you have called it a re-construction scheme.
Mr. Slade-Yes
His Lordship-You emphatically dealt with it in the circular as a re-construction scheme. The question to my mind is whether these resolutions, although they seemed to be resolu tions for a sale, are not so affected by the notice as to make it really a re-construction.
Mr. Slade-It comes to this that if a company set about to carry through a scheme which they described as a re-construction scheme and they carry it through in a way which does not require them to have recourse to section 181, yet because they have described it as a re-construction scheme the remedies given to proceedings under section 161 will apply to this re-construction which is not carried through under that section. His Lordship You can put it in that way. Mr. Slade argued that the word re-con- struction had no fixed technical meaning. What they called the transaction was immaterial provided it was a valid transaction.
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His Lordship-I am not quite sure that the name is so immaterial as you make out. Assum- ing the shareholder knows the company law he goes to the meeting with this in his mind that this is a re-construction. He knows he bas his
remedy and he conducts himself accordingly. Afterwards he finds that it is not a re-construc. tion scheme, but sale.
Mr. Blade-I don't say it is not a re-construc-
tion.
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His Lordship -The whole thing is based on that. If this is a reconstruction scheme the shareholders can not be ousted from their rights under section 161.
Mr. Blade-It is not a re-construction scheme. The shareholder is told the machinery by which the re-construction scheme will be carried out. We presume he knows the terms of the section and that he knows the laws and the reasons
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why it was passed, namely, for the purpose, protecting the shareholders from being obliged to take out shares compulsorily.
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Counsel, after quoting authorities, p›inted out that they did not ask the shareholders to accept shares, and therefore the section could not apply
here.
His Lordship interpolated that shareholders conld not be imputed with knowledge of their own articles.
Mr. Slade said that at a meeting it was quite sufficient to indicate what they were doing without referring to the articles. There was no analogy between the two cases. A prospectus contemplated the purchase f shares on the basis of the information supplied in the pros reolus. The notice and circular did not contemp'ate that shares would be taken on the basis of t e information supplied.
His Lordship-But there is no information în the no1ica and circular.
Mr. Sade-Why should there be ? His Lordship-There is nothing here excopt $750,000 capital, of which the shareholder knows that $250,000 will go in the purchase of the existing company.
Mr. Blade What do they want more for the purpose of deciding whether the price per share was adequate?
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His Lordship-Supposing you were proceed. ing as a new company, you will admit that fuller information was necessary.
Mr. Siade-Only if the statute imposes the obligation.
His Lordship-The statute does.
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Mr. Slade-On a prospectus but not a notice.
His Lordship Putting all facts on one side. Persons are invited to invest $250,000 which they are going to receive in a new com. pany. They are also told they have the option of taking up shares. They are not told of the construction of the new company.
Mr. Slade They are not invited then and there to take up shares on the basis of these documents at all, but they are invited to decide whether $200 was an adequate price for their shares.
His Lordship. The two things go together, Mr. Slade The man does not decide whether he will take up shares, but whether he will take $20) for his share or not,
After tiffin,
Mr. Slade submitted that the essential difference between a notice convening a meeting and a prospectus was that the notice need only set out in general terms the object of the meeting sufficiently fully to cause the share. holders who were interested to attend the meeting, whereas the prospectus must set out all the details on which the recipient was to act. He asserted that the plaintiff could not suoosed b cause of the insufficiency of the notice, and if he did succeed all to which he was entitled, was that whatever had been done irregularly should be set right, that after his right had been secured he was not entitled to throw everythir g into confusion. He was not entitled to obtain the desired price for his shares by threats. He was entitled to arbitration, but the prezent plaintiff declined arbitration and decided to create confusion. That the dissentients were a small minority was seen by the fact that out of 1,350 shares 1,155 were present.
His Lordship-How many shareholders there
Mr. Slade-I cannot say.
His Lordship-One person may hold a number of shares. The number of dissentients at the first meeting was seven. That may bear reasonable proportion to the number of share- holders.
Mr. Stade, in conclusion, said that whatever
his Lordship's decision he thought be would w certain that there had been nothing approaching fraud or wilful suppression of facts. What had been done was nothing more than an irreg ularity which could be set right at any moment by the company. The proper form which the Interlocutory injunction made by his Lordship should have taken was that the company, thould have been restrained from carrying out this resolutions until a proper meeting had been called.
His Lordship-It strikes me on reading the casos that the judges always assumed meeting properly called subsequently, would ratify the first meeting,