Share Transfers
Cases
Mactra Properties Limited v Morshead Mansions Limited and others
[2008] EWHC 2843
“The legal principle is not in dispute. Article 8 of MML’s Articles of Association empower the directors to refuse to register any transfer of shares. That discretionary power is to be exercised bona fide in the interests of the company. Those interests are to be judged by the directors and not by the court: see the observations of Lord Greene MR in In re Smith and Fawcett, Limited [1942] 1 Ch 304
“[The directors] must exercise their discretion bona fide in what they consider – not what a court may consider – is in the interests of the company, and not for any collateral purpose [at 306] …
The question, therefore, simply is whether on the true construction of the particular article the directors are limited by anything except their bona fide view as to the interests of the company [at 308]”
Tangney v. Clarence Hotels Co.
[1933] 1 I.R. 60 Johnston J. wrote
“ It was held by the Court of Appeal (Brett M.R. and Baggalley and Brown L.JJ.) that it was primarily the duty of the transferee to have procured the registration; and, as the consideration appearing on the face of the deed was merely a nominal sum, the plaintiff could, under the particular circumstances, recover only nominal damages from the company. Brett, M.R., at p. 887, says: “So that when the transfer has been executed and handed over to the transferee, it is then for the latter to pay the consideration money and to get the transfer registered. Now, is there any difference made in respect of this by sect. 26 of the Companies Act, 1867? I think not. It was not, I think, intended by the Legislature that that enactment should alter or have any effect on the duty of the transferee, and that it is still his duty, as it was before that enactment, to get himself registered a member of the company in respect of the shares which have been transferred to him, and that this sect. 26 of the Companies Act, 1867, was only for the protection of the transferor in case the transferee failed to perform his duty……
Article 21 is in the following terms
“Any member proposing to transfer any share shall give notice in writing of his intention so to do to the Directors, giving the name and address of the proposed transferee; and if the Directors are of opinion that the proposed transferee is not a desirable person to admit to membership, they may decline to register the transfer of any such share, and it shall be lawful for them, within three months from the receipt of such notice, to transfer any such share to such person as the Directors shall nominate, at such price as the person giving notice and the nominee of the Directors may agree upon; and in default of agreement at such price as the Directors may determine, and the Directors may cause the name of their nominee to be entered in the Register in respect of the share transferred by them, and the receipt of the Company shall be a full discharge to the nominee of the Directors, and after his name has been entered in the Register the validity of the transaction shall not be questioned by any person. The proceeds of any share transferred by the Directors under this Article shall be applied in or towards satisfaction of the debts, liabilities, or engagements (if any) to the Company of the member whose share is transferred, and the residue (if any) paid to such member, his executors, administrators, or assigns.”
The admitted facts with reference to this matter are these:”The plaintiff, who was at the time and is still a shareholder and therefore a member of the Company, got a transfer of the shares in question from the Hibernian Bank, who are the transferors, and sent them on October 23rd, 1931, to the Company for registration. The transfer deed and the accompanying documents were on October 26th returned to the plaintiff with a letter intimating that in accordance with Article 21 the Hibernian Bank was bound to give notice in writing to the Company of the name of the transferee. Ultimately the Company was, on November 2nd, 1931, duly served with a notice executed on behalf of the bank stating that the bank proposed to transfer the shares to the plaintiff. On December 9th, 1931, the bank received a resolution from the Company stating that “the Directors are of opinion that the proposed transferee, Mr. Denis Tangney . . . is not a desirable person to admit to membership and they decline to register the transfer of the [shares in question] from the Hibernian Bank, Ltd., to Denis Tangney.” A further resolution was passed nominating one, Mr. John Hanly, as the transferee of the shares in question at such a price as the bank and the nominee should agree upon and, in default of agreement, at such price as the Directors should determine.
It seems to me that Article 21 must be construed reasonably and not oppressively, and I do not think that it was intended by the framers of the same that service of such a notice was to be a condition precedent to the execution by the holder of shares of an agreement to transfer or even to the execution of an actual transfer deed. A transfer is not legally complete until the transferee has been registered in the books of the Company, and it was not incorrect for the Article to refer to a person to whom shares had been transferred by deed but who had not yet been registered as “the proposed transferee.” The Directors are given the power, not “to decline to permit the execution by the proposed transferor of a deed of transfer,” but merely to “decline to register the transfer of any such share.” This point was made clear by Eve J., In re Copal Varnish Company, Ltd. (1), where the provision in question was this: “No share shall be transferred to any person who is not already a member of the company without the consent of the directors.”Even that clause was held not to amount to a condition precedent. Eve J. said: “So long as prior to the completion of the transaction an opportunity is given to the directors sitting as a board to determine whether the proposed transferee is a person whom they are prepared to admit as a member of the company, the conditions imposed by the Article are, in my opinion, complied with, and the contract into which the vendor on becoming a shareholder entered with his co-shareholders is sufficiently discharged.”In a somewhat analogous case”namely that of the preemption clause in sect. 1 of the Land Law (Ireland) Act 1881”the Vice-Chancellor and Bewley J. arrived at a similar result in the cases of Fisher v. Coan (2) and Meathv. Megan (3). I am, therefore, prepared to give a declaration that on the construction of Article 21 service upon the Company of the notice referred to in that Article was not a condition precedent to the execution of a transfer of the shares by the Hibernian Bank to the plaintiff.
The third argument that has been addressed to me by the defendants, on the construction of this Article, is that the power given therein to the Directors is absolute and unrestricted, and is not confined to the case of a transfer of shares to persons who are not already shareholders and, as such, members of the Company. I am asked by the defendants to hold that the word “membership” should be read as meaning “membership in respect of the shares which are proposed to be transferred.” The plaintiff, on the other hand, says that the Article should be read as it stands, and that, read in that way, its meaning and intention are perfectly plain. Whenever a deed of transfer is submitted to the Directors they are empowered to decline to register the transfer; but their power to do so is not unlimited. It only arises whenever they are of the opinion that the proposed transferee is not a desirable person to admit to membership. It seems to me that that clause was intended to meet the case of a stranger proposing to come into the family, as it were. In such a case the Directors were given the power to determine whether such person was “a desirable person,” and their power to decide that question seems to be absolute and cannot be questioned, except by showing affirmatively that they are exercising their powers capriciously or wantonly: Ex parte Penney (1). As was pointed out by Eve J., in In re Bede Shipping Co., Ltd. (2), the right of an owner of shares to get rid of them by transfer is absolute except in so far as it is restricted by contract inter socios, and “it is to the Articles of Association that we must turn for the purpose of ascertaining the nature and the extent of the restrictions imposed.” The powers that have been conferred upon Directors in this respect vary widely in their extent and operation. One of the commonest forms of such restrictions, as Cozens Hardy M.R. pointed out in the same case (p. 132), was and is the power to restrict the transfer of shares except to persons who were already members of the company. That device has been adopted by company draftsmen in many different forms—that is, to place no restrictions upon the circulation of the shares amongst the members of the company, but to enable the heavy hand of the Directors to come down when a stranger seeks to enter into the charmed circle. This is the policy that is to be discerned in Articles 42 and 43 in the present case. Whenever the Directors with the sanction of the Company decide to increase the capital of the Company by the issue of new shares, all such new shares must, subject to any direction to the contrary that may be given by the general meeting of the Company that sanctions the increase of capital, “be offered to the members in proportion to the existing shares held by them”; and if new shares are issued in the future the plaintiff will be entitled to his proportion of them as a matter of course, and the Directors cannot refuse to let him have them on the ground that he is not”a desirable person.”
The case of In re Dublin North City Milling Company (3),which is relied upon by the defendants, is of no assistance in this case. The article in question there provided that the Directors “may decline to register any transfer of shares . . . unless the transferee is approved of by the board “; and it was held that the Directors could decline to register a transfer of shares to a person who was already a member of the company. This was not a decision upon the construction of an Article of Association. It was an ordinary case where the Directors had an unrestricted power to decline to permit the registration of any transfer of shares. The transferee sought to get behind the power conferred by the Article by contending that because he was already a member of the company, the action of the board could not possibly be bonafide. The argument of the transferee’s counsel opened in this way: “The refusal of the directors to register the transfer is not bona fide”;and Meredith M.R. decided that he could not come to such a conclusion of fact upon the mere ground that the transferee was already a member of the company.
I cannot accede to the argument of the defendants that a shareholder is a member of the Company in regard to the particular shares that he holds. That is too narrow a view of the principles of the law as to the nature and constitution of a public company. The Act of 1862, under which this Company was constituted, provides (sect. 18) that upon the registration of the company, “the subscribers of the Memorandum of Association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate by the name contained in the Memorandum of Association, capable forthwith of exercising all the functions of an incorporated company.” Sect. 23 provides further that the subscribers “and every other person who has agreed to become a member of a company under this Act, and whose name is entered on the register of members, shall be deemed to be a member of the company.” These provisions are continued with small verbal differences, by sect. 16, sub-sect. 2, and sect. 24 of the Act of 1908. It seems to me, therefore, that the word “membership” in Article 21 can only mean membership of the corporate body of which the members in the aggregate consist.
I shall therefore declare that on the true construction of Article 21 the Directors had no power to refuse to register the transfer of the shares by the Hibernian Bank to the plaintiff, he being at the time a shareholder and a member of the Company.
Banfi v Moran and others
[2006] IEHC 257 Laffoy J. wrote
“There was no real divergence between counsel for the plaintiff and counsel for the respondents as to the legal principles which govern the determination of the issue whether a transferee of shares was refused registration as a member of a company “without sufficient cause”. Both relied, inter alia, on the comprehensive review and analysis of the relevant authorities which is to be found in Courtney on The Law of Private Companies (2nd Edition, 2002, Butterworths). Where they diverged was in relation to the application of those principles to the facts of this case.
The relevant principles for present purposes are the following:
(1) The exercise of the directors’ power to refuse to register must be gauged by reference to the relevant regulation in the company’s articles of association, which may take many forms. However, in all cases the powers of the directors to refuse registration must be exercised bona fide and for the benefit of the company as a whole (Courtney, para. 16.037).
(2) Where, as here, the material part of the relevant regulation replicates verbatim model reg 3 of Table A, Part II, the directors have the most unfettered of powers (Courtney, para. 16.038). The breadth of the discretion given in an article so worded was recognised by Lord Greene M.R. in In re Smith and Fawcett Limited [1942] 1 Ch. 304 in the following passage in his judgment (at p. 308):
“In the present case the article is drafted in the widest possible terms, and I decline to write into that clear language any limitation other than a limitation, which is implicit by law, that a fiduciary power of this kind must be exercised bona fine in the interests of the company. Subject to that qualification an article in this form appears to me to give the directors what it says, namely, an absolute and uncontrolled discretion.”
(3) The Table A, Part II model permits the directors to decline registration without giving any reasons for their decision. As Courtney points out (at para. 16.040) it was recognised by Black J. in In re Hafner [1947] I.R. 426 (at p. 440) that there are exceptions to that general rule. However, in this case, the respondents gave reasons in the minute of the meeting of 17th September, 2003 and in the affidavits filed by them in these proceedings. Accordingly, unlike the Hafner case, this is not a case in which the plaintiff has to penetrate the total reticence of the directors. As Courtney points out (at para. 16.042), the directors are not confined to the reasons they gave at the time of the refusal: Village Cay Marine Limited v. Ackland (Barclays Bank Plc third party) [1998] 2 B.C.L.C. 327.
(4) As to the nature of the court’s jurisdiction under s. 122 and the process the court is required to engage in, I agree with the view expressed in Courtney (at para 16.048) that is to review the result of the exercise of their power by the directors where it is established that they have acted otherwise than bona fide and for the benefit of the company. In In re Smith and Fawcett Limited Lord Greene M.R. emphasised the subjectivity of the discretion which is reposed by an article on the lines of the article at issue here in the directors. He stated (at p. 306):
“They must exercise their discretion bona fide in what they consider – not what the court may consider – is in the interests of the company, and not for any collateral purpose.”
In In re Hafner, on appeal to the Supreme Court, Sullivan C.J. recorded (at p. 470) a concession made by counsel for the defendants that the power conferred by the directors by the relevant article was a fiduciary power to be exercised bona fide in the interests of the company, the exercise of which might be controlled by the court if there was evidence which justified the conclusion that the directors had acted improperly. Later in his judgment Sullivan C.J., having adverted to the difficulty which the plaintiff faced in seeking to establish that the actions of the directors was not a bona fide exercise of their fiduciary power because the directors were not obliged to assign any reason for their refusal to register, went on to identify the burden placed on the plaintiff as follows (at p. 471):
“And accordingly the plaintiff had to adduce evidence of relevant circumstances from which the court could legitimately infer that the directors had acted improperly.”
The Supreme Court affirmed the finding of Black J. in that case, which was a witness action, that the directors’ exercise of their discretion was actuated by an illegitimate motive (to facilitate payment of exorbitant emoluments to themselves) and, as such, was not a bona fide discharge of their fiduciary duty.
(5) As is pointed out in Courtney (at para. 16.056), the rights of a transferor of shares are not entirely dependent upon common law principles. If the directors have exercised their powers in a manner oppressive to, or in disregard of, a transferor-member’s interests he may bring a petition under s. 205. Further, the personal representative of a deceased member has locus standi by virtue of s. 205(6).
t which the plaintiff need not aver as having been complied with,
re Hafner; Olhausen v. Powderley
[1943] 1 I.R. 452 Black J. discussed the law as follows
“In Casey v. Bentley (2) the directors under a power in the Articles refused to register a transfer. Therefore, no legal interest could pass to the buyer. In his amended claim the vendor sought to rescind the contract. It was held that he could not do so. But why not, if no equitable interest had passed? In that case there was actually a provision in the relevant Article that if registration was refused, the transfer should be void. Notwithstanding this. the Irish Court of Appeal held that the words “shall be void” only meant “void against the company,” and that, as between transferor and transferee, the contract was neither void nor voidable, the true position being that the transferor became a trustee of the shares for the transferee and the latter was bound to indemnify the former against calls if any such became payable. Is it possible that a transferee, who, after purchasing, found out that calls were about to be made could evade liability for them by refusing to present his transfer for registration, saying that, as the legal interest had not passed to him, no equitable or other interest passed either? This arose in Hodgkinson v. Kelly (3) and Hawkins v. Maltby (4). In both cases it was held that he could not do so. It is true that in Casey v. Bentley (2) stress was laid on the fact that the sale was made subject to the rules of the Stock Exchange, according to which payment is to be made on the mere handing over of certificates and transfers, the subsequent registration being at the transferee’s risk. Wilkinson v.Lloyd (5) was distinguished on the ground that it was different from a Stock Exchange sale, being like a sale by a partner and under a deed which made consent to the assignment essential to the transfer. What, then, is the position in the case of sales outside Stock Exchange rules? In Casey v. Bentley (1) Walker L.J. examines this. He says:””It seems to be clear that when the contract is not made under the rules of the Stock Exchange, but is expressly made subject to the constitution of the company, and that constitution puts on the vendor the obligation to procure the assent of the directors, if the vendor fails to procure that assent, the purchaser will be released from his contract. When in a contract outside the Stock Exchange there is no stipulation putting it on the vendor to procure assent and the directors refuse registration, different opinions have been expressed. Lord Chelmsford in Hawkins v. Maltby (2) expresses the opinion that notwithstanding the refusal, the transaction is complete as between transferor and transferee. On the other hand, Lord Romilly in Bermingham v. Sheridan (3), another case not turning on the rules of the Stock Exchange, decides that every contract for the sale of shares is conditional on the company accepting the vendee as shareholder. This decision has been generally treated as incorrect, and Lord Lindley in his book on Company Law states that Lord Romilly so admitted in a subsequent case.”
Now, these cases and the foregoing words of Walker L.J. seem to be inconsistent with the idea that a transfer of shares, which fails to pass the legal interest because registration is refused, for that reason passes no interest at all. They also tend to indicate that in a transfer like that to the plaintiff here, where so far as we know there was not, in the words of Walker L.J., any express “stipulation putting it on the vendor to procure assent,” the transaction would be valid as between transferor and transferee, although no legal interest could pass without registration. I assume that so far as this principle is concerned an executor-transferor would be in the same position as a vendor even if the consideration was nominal.
Finally, there are two cases bearing on this point which I think deserve noting. They are both cases under the Companies Clauses Act, 1845. Sect. 14 of that Act gave a general right of transfer, just as s. 22 of the Companies Act, 1908, gives a like right here. Then s. 16 of the Act of 1845 imposed a restriction, as the Articles of Association impose a restriction here. The restriction imposed by s. 16 was one prohibiting a shareholder from making a transfer after a call was made and pending payment. There was thus an analogy with the present case up to a certain point. Now, the first of these cases was Reg. v. Londonderry & Coleraine Railway Co. (1). A transfer had been made after a call was made. A mandamus was sought to compel registration. This, of course, was refused. But in Hawkinsv. Maltby (2) Lord Chelmsford referred to the Londonderry & Coleraine Railway Case (1). After pointing out that it was an impossible claim for a mandamus, he went on to say:””That is a totally different case from the question of transfer as between transferor and transferee; for the shareholder can transfer the shares as between himself and his transferee, though he cannot compel the company to register the transfer.” He adds:””Then it was said that the Articles provided that the directors might decline to register any transfer . . . if the transferee was not approved of by the directors, but the same observation applies to this argument, the directors may decline to register, but the transaction is complete as between transferor and transferee.”
The second of the two cases was The Queen v. Wing (3)”a decision also on the Act of 1845. Coleridge J. said (p. 647):””There is nothing in the Act to show that a deed of transfer made while the calls upon the shares are unpaid is to be considered as a nullity. The shareholder who makes such a transfer does that which he is not authorised, as between himself and the company, to do: but that does not necessarily make the deed void as between himself and the transferee.”And at p. 650 he says:””The general right to transfer is given by s, 14; but it is, by the same section, made subject to certain restrictions, one of which is afterwards mentioned in s. 16.” Since Hunter’s Case (4) dealt with a special state of facts”a mortgagee’s exercise of his power of sale”and since it did not profess to overrule any previous decisions, I think the citations I have given above justify me in doubting whether in a case like the present, the defendants are right in saying that because the directors refused registration no interest passed at all, and the transfer was void even as between transferors and transferee.
However, I think I am not called upon to decide that point at all; but may leave it for an interesting argument at some future time.
Charles Kelly Ltd -v- Companies Acts
[2010] IEHC 38 (12 February 2010)
Judgment of Miss Justice Laffoy delivered on the 12th day of February, 2010.
Substantive proceedings
In the substantive proceedings the petitioner seeks relief under s. 205 of the Companies Acts 1963 (the Act of 1963). Section 205(1) provides:
“Any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or any of the members (including himself), or in disregard of his or their interests as members, may apply to the court for an order under this section.”
The company in relation to which relief under s. 205 is sought by the petitioner is the company named in the title hereof, Charles Kelly Limited (the company). The company was incorporated on 18th July, 1932. It carries on the business of builders-merchant and retail hardware at Letterkenny, County Donegal. When these proceedings commenced in 2008 it had recorded a turnover of €10m for the previous financial year ending on 30th December, 2007. It has 50 employees.
The petitioner and the first respondent are brothers. Their grandparents and their grandparents’ descendants have been involved in the business of the company since 1932. When the matter came on for hearing on 15th December, 2009 a fundamental problem in the manner in which the case had been presented immediately emerged.
It is stated in the petition that the “authorised share capital of the company is €19,046.07”. That statement did not conform with the requirement of Form No. 1 of Appendix N of the Rules of the Superior Courts 1986 (the Rules). Apart from that it gives a misleading picture of what is at issue on the petition. The petition does not disclose that the petitioner is a member of the company, nor does it disclose the number of shares he holds. What is pleaded in the petition is that the petitioner and the first respondent have over the years conducted and managed the affairs of the company on the basis of acknowledging their equal shareholding in the company and their entitlement to share equally in the management of the company. One of the reliefs sought by the petitioner in the petition is an order directing the company to purchase the petitioner’s shareholding in the company at a fair market value.
In the respondents’ points of defence it is denied that the petitioner and the first respondent have conducted and managed the company’s affairs on the basis that they had equal shareholdings in it.
In the light of the problem which emerged when the petitioner’s case was being opened – that there is a dispute between the petitioner and the first respondent as to whether the petitioner is a member of the company and, if he is, as to the number of shares he holds in the company – it was decided that a modular approach would be adopted to the hearing of the petition and that the Court would decide the following issues first:
(1) whether the petitioner is a member of the company; and
(2) the extent of the petitioner’s shareholding in the company.
The importance of the first issue is that, in order to maintain an application under s. 205, the petitioner must be a member of the company. In accordance with
s. 31 of the Act of 1963, given that he was not an original subscriber to the memorandum of association, he must establish that he agreed to become a member of the company and, crucially, that his name is entered on the register of members.
Approach to determining the issues
The issues are to be decided on the basis of the evidence of the petitioner and the first respondent, which the Court heard on 15th December, 2009, 16th December, 2009 and 18th December, 2009 and the submissions made by counsel for the parties on 18th December, 2009 and on 28th January, 2010. A vast array of documentation was put before the Court. An issue arose as to the admissibility of share transfers, which were not stamped. I propose leaving over determination of that issue until I have outlined the evidence.
In outlining the evidence, I propose setting out what might be referred to as “the big picture” with a view to identifying the current issued share capital of the company. I will then consider what the various share transfers, declarations of trust and other documentation which have been put in evidence show in the light of the evidence of the petitioner and the first respondent. On this aspect of the matter, I will also consider filings which were made in the Companies Registration Office (CRO) in accordance with the statutory requirements of the Companies Acts. I will then consider what the register of members discloses and endeavour to reconcile it with the respective positions adopted by the petitioner and the first respondent.
The current share capital
The original nominal share capital of the company was £15,000 divided into 15,000 shares of £1 each. As a result of the purchase of two tranches of shares by the father of the petitioner and the first respondent, Edward Joseph Kelly (Mr. Kelly) and the purchase of two tranches of shares by the first respondent in 1981, Mr. Kelly and the first respondent became the majority shareholders in the company. After the acquisition by purchase of the four tranches on foot of share transfers dated March and November, 1981, between them Mr. Kelly and the first respondent owned 7,938 ordinary shares of £1 each, which gave them the majority stake.
In 1992, as a result of the settlement of proceedings involving the then minority shareholders in this Court, the company bought back the minority stake pursuant to s. 213 of the Companies Act 1990 and the Court was told that those shares were cancelled. I have had to take that at face value because not all of the documentation reflecting what happened in 1992 was put before the Court. Moreover, the register of members does not reflect the change in the issued share capital.
In consequence of what happened at the EGM in 1992 and subsequently, what the Court is concerned with is the current issued share capital of the company which is the Euro equivalent of IR£7,938 divided into 7,938 shares at the Euro equivalent of IR£1 each.
In this judgment, I will be addressing what happened to the 7,938 shares since November 1981.
The paper transactions and filings
Some of the paper transactions are conveniently grouped together both according to chronology and the objective in effecting them. I propose considering each group in turn.
Transactions in 1987
Mr. Kelly was seriously ill from cancer in early 1987 when certain actions were taken in apprehension of his imminent death. To understand those transactions it is necessary to refer to articles 5 and 8 of the articles of association of the company.
Article 5, insofar as is relevant for present purposes, provides as follows:
“The right of members of the company to transfer shares shall be subject to the following restrictions:
(a) No share shall be transferred to a person who is not the registered holder of one or more shares so long as any person, being the registered holder of one or more shares, or any person approved by the Directors, is ready and willing to purchase such shares at a price fixed and certified to the Company by the Auditors of the Company as the fair price thereof.
(b) On the death of any member, if his shares shall not be transferred within twelve months from the date of his decease, his executors or administrators, upon the request in writing of the Directors, shall be bound to sell and transfer his shares to a member or members of the Company or to some other person approved of by such Directors at the price fixed and certified by the Auditors as the fair value.”
Effectively, article 5 gave a right of pre-emption to existing registered shareholders of the Company, both in the case of inter vivos transfer and transmission in death.
Article 8 stipulated that the “qualification of a Director shall be the holding of 500 shares in the Company”. Curiously, it did not stipulate a requirement that the holding be registered in the register of members. However, I attach no significance to that in determining the current ownership of the shares.
Apprehending that the death of Mr. Kelly was imminent, in January 1987, the following two transactions were effected by the first respondent:
(1) For nil consideration the first respondent transferred 500 shares to the petitioner. The share transfer form bears the date 26th January, 1987. The petitioner executed a document headed “Declaration of Trust”, which bears the same date, which is addressed to the first respondent, in which the petitioner acknowledged that –
“… the 500 ordinary shares of £1 each in [the company] now registered in my name are your property and that I hold same in trust for you.”
There followed an undertaking by the petitioner to deal with the shares as the first respondent should direct. An undated but executed transfer of the 500 shares from the petitioner back to the first respondent appears to have been prepared on the same day. On the basis of a comparison of all of the documents which bear the date of 26th January, 1987, I am sceptical as to the correctness of the evidence of the petitioner that the declaration of trust was executed much later in 1992. However, nothing much turns on that.
The objective of the share transfer and the declaration of trust was to enable the petitioner to qualify to become a director of the company. The share transfer form was not stamped. It is common case that the petitioner never became registered as the owner of the 500 shares the subject of the share transfer form. The petitioner acknowledges that he acquired and held those shares as trustee for the first respondent.
(2) By a share transfer form of 26th January, 1987 the first respondent transferred one share to his mother, Margaret Mary Kelly (Mrs. Kelly), at nil consideration. The objective of that transfer was that Mrs. Kelly would become a registered shareholder of the company so that, when she succeeded to the shareholding of her husband, Mr. Kelly, on his death, a right of pre-emption under Article 5 of the Articles of Association would not arise. Mrs. Kelly executed a Declaration of Trust on 26th January, 1987 in terms similar to the Declaration of Trust referred to at (1) above. The share transfer in her favour was not stamped, nor was she registered as the owner of one share in the register of members. She appears to have executed an undated transfer back to the first respondent on the same day.
On 26th January, 1987 the directors and secretary of the company approved in writing the share transfers referred to at (1) and (2) above. On the same day, the Board of Directors of the company resolved that the petitioner and the first respondent be appointed directors with effect from 26th January, 1987.
Mr. Kelly died in February 1987 and, on his death, Mrs. Kelly became beneficially entitled to his 4,219 shares in the company. She was also his personal representative.
Before embarking on an outline of what happened subsequently in relation to the ownership of the shares, I think it is worth recording that in the most recent Annual Return (Form B1) filed in the CRO, which was lodged on 16th October, 2007, and is made up to 28th September, 2006, the list of past and present members shows the ownership of the shareholding in the company as follows:
Mr. Kelly: 4,219 shares
The first respondent: 3,218 shares
The petitioner: 500 shares
Mrs. Kelly 1 share
While the aggregate of those shareholdings is 7, 938 shares, which represents the current issued share capital of the company, that breakdown represents the position as it was immediately before the death of Mr. Kelly in 1987, although the shares of the petitioner and the one share of Mrs. Kelly had remained registered in the name of the first respondent.
Things have moved on since then. Unfortunately, on the evidence, all but one of the subsequent transactions does not bear the correct date of the transaction.
Transactions in April 1992
The exception is a transfer which bears the date 30th April, 1992 from Mrs. Kelly to the petitioner of 500 shares in consideration of “natural love and affection”. The share transfer form is not stamped. However, the transaction was registered in the register of members, as will appear from what I will say below. Moreover, by a document dated 30th April, 1992, the directors of the company, including the first respondent, approved the share transfer. I think it is reasonable to infer that the reason that that share transfer was executed and that the directors of the company approved of the transfer was that an Extraordinary General Meeting (EGM) of the company was about to be convened on 22nd May, 1992 to deal with the buy back of the minority stake as a result of the settlement of the proceedings of the High Court.
For the reasons set out below, I am satisfied that it is reasonable to infer that in April 1992, sometime before the transfer dated 30th April, 1992, a share transfer form was executed by Mrs. Kelly which bears the date 16th September, 1991 and on which the particulars of the transaction are typed. That was a transfer of the 4,219 shares which Mrs. Kelly had inherited from Mr. Kelly and, in the transfer, she was obviously acting as personal representative of Mr. Kelly, although she is not so described, and was transferring the shares to herself as the beneficial owner thereof. As regards the date which that share transfer form bears, 16th September, 1991, the explanation given by the petitioner for the fact that it was so dated is that the company’s auditors had previously valued the shares of the company as of September 1991 and either the company or the estate of Mr. Kelly did not want to incur the cost of having an up to date valuation done. In any event, the share transfer form was presented to the Revenue Commissioners in October 1992, presumably for adjudication. Clearly on a transfer from Mrs. Kelly, as personal representative of Mr. Kelly, to herself, no ad valorem stamp duty would have been exigible and I am satisfied that the document is admissible. I am also satisfied that it must have been executed prior to the execution of the transfer dated 30th April, 1992 of 500 shares by Mrs. Kelly to the petitioner because, otherwise, Mrs. Kelly would not have title to voluntarily transfer 500 shares to the petitioner. Coincidentally, there is also among the papers put before the Court a share transfer form signed by Mrs. Kelly as “Margaret Kelly”, which is completed in manuscript and bears the date 27th April, 1992 but otherwise is on all fours with the typed transfer which bears the date 16th September, 1991. The existence of this document leads me to believe that Mrs. Kelly effectively vested the shares she inherited from her husband in herself as beneficial owner on 27th April, 1992. Moreover, the directors of the company, including the petitioner and the first respondent, executed a document approving Mrs. Kelly being registered as the registered owner of 4,219 shares registered in the name of Mr. Kelly on 30th April, 1992.
The position, accordingly, as to the ownership of the 7,938 shares in the company which were not the subject of the buy back at the EGM in May 1992 at the time of the EGM was as follows after the EGM:
(a) Mrs. Kelly, as the successor in title of her husband, Mr. Kelly, was the legal and beneficial owner of 3,719 shares, having transferred 500 shares to the petitioner;
(b) the first respondent was the legal and beneficial owner of 3,218 shares;
(c) as regards the 500 shares transferred by the first respondent to the petitioner in 1987, the petitioner was the legal owner of those shares but the respondent was the beneficial owner;
(d) similarly, as regards the one share transferred by the first respondent to Mrs. Kelly in 1987, Mrs. Kelly was the legal owner and the petitioner was the beneficial owner thereof; and
(e) the petitioner was the legal and beneficial owner of the 500 shares transferred by Mrs. Kelly by virtue of the share transfer dated 30th April, 1992.
Transactions in September 1992
At some time subsequent to the EGM two further transactions occurred which are of considerable relevance. Although the relevant share transfer forms are each dated 17th September, 1991, it is common case that they were executed after the EGM in May 1992. The evidence of the petitioner was that they were executed in September 1992. The evidence of the first respondent was that they were executed after the EGM in May 1992. The effect of the transactions was as follows:
(1) Mrs. Kelly transferred 3,938 shares to the petitioner at a consideration of IR£1; and
(2) Mrs. Kelly transferred 249 shares to the first respondent, again at a consideration of IR£1.
The combined effect of the two transfers was that Mrs. Kelly transferred, or more correctly purported to transfer, 4,217 shares. Of course she did not have 4,217 shares; she only had 3,719 shares, because she had already transferred 500 shares to the petitioner by virtue of the transfer of 30th April, 1992. I am satisfied on the evidence that the object of the exercise in September 1992 was that Mrs. Kelly would transfer all but two of her shares in such a way that the petitioner and the first respondent would have an equal shareholding in the company. As the first respondent acknowledged in evidence, Mrs. Kelly transferred 249 shares to him to bring his existing shareholding up to 3,968 shares, which was the number of shares which Mrs. Kelly purported to transfer to the petitioner. I can only conclude that the 500 shares which had already been transferred by Mrs. Kelly to the petitioner were overlooked and that the assumption that Mrs. Kelly had 3,968 shares to transfer was a mistake.
The explanation given for the backdating of the two share transfer forms from post September 1992 to 17th September, 1991 was the same as was proffered for backdating the transfer from Mrs. Kelly to herself – that the company’s then auditors, Price Waterhouse, had already carried out a valuation of shares in September 1991 and the objective was to avoid the expense of having a further valuation carried out. Neither share transfer form is stamped and neither transaction was entered in the register of members.
Transactions in 1995
There was put before the Court the following six other documents which bear the date 17th September, 1991:
(i) a share transfer form executed by the petitioner transferring 3,968 shares to the petitioner and the first respondent at a consideration of £1;
(ii) a share transfer form executed by the first respondent transferring 3,968 shares in consideration of £1 to the first respondent and the petitioner;
(iii)a declaration executed by the petitioner in which he acknowledged and confirmed that the 3,968 shares which he had transferred from his name into the joint names of himself and the first respondent –
“… are from now to be held by us in joint names as joint tenants (i.e. in the event of my death and my brother surviving me that my interest in the joint holding of shares will cease and all interest will pass to my brother William Joseph automatically by right of survivorship);”
(iv)a similar declaration executed by the first respondent in relation to the 3,968 shares which he had transferred into the joint names of himself and the petitioner;
(v) a share transfer executed by the petitioner in respect of 3,968 shares to himself and the first respondent with the added words: “(in joint names as joint tenants)”; and
(vi)a share transfer executed by the first respondent to himself and the petitioner on the lines of the transfer at (v).
I can only assume that the transfers at (v) and (vi) above were executed on a “belt and braces” basis.
There were also a number of undated transfers in which no consideration was expressed, which were executed, apparently, at the same time: from the petitioner to the first respondent in respect of 3,968 shares; and from the first respondent to the petitioner in respect of 3,968 shares. Two share transfer forms seem to have been signed in blank, one by the petitioner and one by Mrs. Kelly at the same time.
There was consensus between the petitioner and the respondent as to when all of the foregoing documents were executed. Both testified that the transfers were executed in 1995 in the following circumstances. At the beginning of 1995 the petitioner announced his intention to get married later that year. The petitioner’s evidence was that the first respondent was unhappy that, in the event of the death of the petitioner, his wife would have a right to acquire the petitioner’s shares. The petitioner’s evidence was that, on the basis of advice he got, he proposed to the first respondent that they both transfer their respective shareholdings to the pair of them as joint tenants so that, in the event of the death of one, the survivor would become one hundred per cent owner of the company, or, more correctly, all the issued shares except two. The purpose of having the undated transfers executed was with a view to meeting the exigency of one or other of them dying.
As will appear later I am somewhat sceptical as to whether the transfers into joint names were executed in 1995.
CRO filings
I have already outlined what appears on the Annual Return (Form B1) which was filed in the CRO on 16th October, 2007. In the directors’ report to the financial statements for the year ended 30th December, 2005 filed with the Annual Return, which was signed by the first respondent and the petitioner, they, as directors of the company, stated the interest of the directors holding office at 30th December, 2005, in the case of the first respondent, as 3,968 ordinary shares of €1.27 each and, in the case of the petitioner, as 3,968 ordinary shares of €1.27 each. The financial statements were audited by Pricewaterhouse Coopers. That statement represented to the world at large that the first respondent and the petitioner owned between them equally all but two of the issued shares in the company. In draft financial statements for the years ended 30th December, 2006, 30th December, 2007 and 30th December, 2008 put before the Court, which are dated 12th November, 2009, the interest of the directors is similarly stated.
Devolution of Mrs. Kelly’s shares
It would appear that, up until her death, Mrs. Kelly considered herself to be the owner of the remaining two shares in the company. She died on 22nd October, 2006. A document, which was represented by the petitioner as being her last will and testament dated 9th October, 2006, was put in evidence. That document has not been proved as the last will and testament of Mrs. Kelly. The explanation given by the petitioner, who is the sole executor named in the will, for the delay in applying for a grant of probate was that there have been difficulties in having the estate of Mrs. Kelly valued. For what it is worth, and in the absence of a grant of probate it is of little probative value, in clause 4 of that document Mrs. Kelly bequeathed her shareholding in the company to her sons, the petitioner and the first respondent, for their own use absolutely to be divided as to one share to the petitioner and as to one share to the first respondent. She went on to express the wish that her sons, the petitioner and the first respondent, “will duly reward my son George Kelly for his contribution to the business over the years”. George Kelly is a younger brother of the petitioner and the first respondent, who has been working in the business since 2000.
Conclusions in relation to the paper transactions
There are two areas of factual dispute between the first respondent and the petitioner arising from the documentation which I have outlined.
The first relates to the transfer dated 30th April, 1992. The evidence of the first respondent was that he only became aware of that document a few days before the hearing. It may be that he never saw the actual share transfer form signed by Mrs. Kelly transferring 500 shares to the petitioner, but the fact is that he was a party to the approval given by the directors to the transfer on 30th April, 1992. Therefore, he must have been aware that the transfer was happening at the time.
The second relates to the first respondent’s understanding of Mrs. Kelly’s motivation in transferring all but two of her shares, so that the first respondent and the petitioner would become equally entitled to all of the shares in the company except those two, sometime in 1992 after the EGM. His evidence was that the “whole transfer” was part of “the family arrangement” that they were putting in place. He explained his understanding of “family arrangement” as that the business and the company had been passed on from the generations and that he and the petitioner were acquiring it and that there was a custodial nature to that and what they wanted to do was to preserve the custodial nature.
As regards the documents which the petitioner and the first respondent signed in 1995, the evidence of the first respondent was that he understood those documents to be a temporary arrangements to enable the family arrangements which they were in the process of organising to be put in place. His evidence was that he never really expected them to be implemented. The first respondent also gave evidence of family meetings which took place subsequently. Contemporaneous notes of a meeting held on 31st July, 1995 made by the petitioner were put in evidence. In the notes it was recorded that the first respondent had stated that the 1991/1992 arrangement was “of a temporary nature”. While the petitioner acknowledged that he made that note, his evidence was that he does not know in what context he made it.
As I understand the evidence of the first respondent, his view of his shareholding in the company, not just the 249 shares which Mrs. Kelly transferred to him but also the 3,719 shares which he purchased in 1981, is that all those shares are held by him subject to his responsibilities to other members of the family to allow other members of the family participate in both the benefits and the responsibilities of the company and its business. While that is a worthy position to adopt, in my view, on the evidence it is impossible to conclude that Mrs. Kelly in transferring all but two of her shares in the company in 1992, so as to give the petitioner and the first respondent, both of whom had abandoned careers as accountants to work full-time in the company’s business in the 1980s, equal shareholding in the company, intended that they should hold the shares as trustees only pending the putting in place of some sort of family arrangement which would dilute the ownership of the shares. Further, on the evidence, Mrs. Kelly had little or no input in the meetings of family members in the late 1990s. Whatever aspirations certain family members may have had came to nought.
Accordingly, on the evidence, I am satisfied that currently the first respondent and the petitioner hold their respective shares untrammelled by any trust in favour of their siblings or other members of their family.
As regards the petitioner, as I have already recorded, he acknowledges that the 500 shares which were transferred to him by the first respondent in 1987 were transferred to be held upon trust for the first respondent. He asserts ownership of the 500 shares which were transferred to him by the transfer of 30th April, 1992. On the evidence, I have come to the conclusion that in 1992 after the EGM, Mrs. Kelly decided to transfer her shareholding in the company to the petitioner and the first respondent in such a way as that they would be equally entitled to all of the issued shares in the company except two shares. The fact that she had already transferred 500 shares to the petitioner by virtue of the transfer dated 30th April, 1992 was obviously overlooked. I am satisfied that the intention of Mrs. Kelly was that, following the execution of the transfers by her which bear the date 17th September, 1991, it was her intention that the petitioner should acquire 3,468 shares, so as to give him a total shareholding of 3,968 shares. Further, I am satisfied that, notwithstanding the mistake in the transfer, the transfer should be regarded as having had that effect – nemo dat quod non habet. In any event, it has been regarded by the company as having had that effect for the past eighteen years, as the directors’ reports filed with the financial statements in the CRO establish.
The evidence that the 1995 transactions creating joint ownership were only intended to be temporary arrangements does not accord with the documentary evidence before the Court. Among the documents put in evidence is an undated letter from the company, signed by the petitioner, to Price Waterhouse & Co., in Derry, the text of which is as follows:
“I enclose the forms for stamping as discussed:
(1) Stock transfer form 16th September, 1991 referring to the transfer to my mother’s name on the death of my father, which seems to be in order.
(2) Two sets of stock transfer forms, alternate wording, of 17th September, 1991, confirming the joint tenancies set up between William and I.
(3) Copy declarations by William and I confirming the joint tenancy in the interest of clarity as suggested. These for your file and general information only.
I trust you find the above in order for present and will review same and proceed to stamping in due course.”
The transfer which bears the date 16th September, 1991 was lodged in the stamps branch of the Revenue Commissioners in October 1992 but was returned to Price Waterhouse by the Stamps Adjudication Office in March 1993 “for amendment”. There is no evidence that it was re-lodged. However, the undated letter strongly suggests that the transfers into joint names were contemporaneous with the transfer which bears the date 16th September, 1991, which was executed in September 1992 and that they were not executed in 1995. Of more significance than indicating the proper date of the transfers, however, is the fact that the undated letter clearly indicated that they were intended to have effect.
A letter dated 3rd October, 2008 from the petitioner to the first respondent, which was put in evidence, corroborates what the undated letter clearly indicated – that the transfers into joint names were to take effect. The purpose of the letter was to explain the basis on which fees had been charged by Pricewaterhouse Coopers. The explanation is that the fees were charged for tax advice, including tax advice about the shareholdings of the petitioner and the first respondent in the company – “(separating the joint-tenancies etc.).” The petitioner records in the schedule that, because of the potential liability to capital acquisition tax, the advice “strongly recommended we forget about or split the joint tenancies as soon as possible”.
I am satisfied that the transfers executed to create the joint tenancies were intended to have effect and that they took effect. The Court cannot ignore them.
Leaving aside the issues in relation to –
(a) the rights of pre-emption under article 5 of the articles of association raised by counsel for the first respondent,
(b) the lack of stamping of certain documents, and
(c) the lack of registration in the register of members of certain documents,
all of which I will address later, I am of the view that the current beneficial ownership of the 7,938 ordinary shares in the company is as follows:
(1) the petitioner and first respondent are joint owners of 3,968 shares;
(2) the first respondent and the petitioner are joint owners of 3,968 shares; and
(3) the estate of Mrs. Kelly is the owner of 2 shares.
That is inconsistent with what the company, and the petitioner and the first respondent as directors of the company, have been telling the world at large through the directors’ reports both before and after the initiation of these proceedings. However, the petitioner and the first respondent acting together have the capacity to sever the joint tenancy and engineer a situation which reflects what they have been representing as their respective interests.
Register of members
The ownership of the current share capital in the company, 7,938 ordinary shares of €1.27 each, is reflected on Folios 9 and 11 of the register of members.
On Folio 9 Mr. Kelly was registered as a member in 1953 and it is recorded that he acquired three tranches of shares, one in 1953 and two in 1981, aggregating 4,219 shares. Mrs. Kelly is shown as having been substituted as a member in place of Mr. Kelly on 30th April, 1992. There is a note on Folio 9 which states:
“Letter requesting registration and probate of will of [Mr. Kelly] presented on 27th April, 1992 showing [Mrs. Kelly] as sole executrix and sole beneficiary.”
That note was signed: “Gerard Kelly – Director
pp Patrick McCafferty – Secretary.
The petitioner testified that Mr. McCafferty, who had been the secretary of the company for many years, was over 90 years of age at the time and that both the petitioner and the first respondent acted as his assistant from time to time. In fact, Mr. McCafferty resigned as secretary of the company on 19th May, 1992. The petitioner also testified that the first respondent had full knowledge of the entries in the register.
Folio 9 also records the transfer dated 30th April, 1992 of 500 shares, the share numbers being set out, transferred by Mrs. Kelly and discloses that the transferee is recorded on Folio 11. Folio 11 records the same transfer and shows the petitioner as having been entered as a member on 30th April, 1992.
The first respondent is registered as a member on Folio 11, the date of entry being 26th March, 1981. It is recorded that he acquired two tranches of shares in 1981 aggregating 3,719 shares.
Accordingly, the current position in relation to the share register is that it records three members and it records their shareholding as follows:
(1) Mrs. Kelly as the owner of 3,719 shares;
(2) the first respondent as the owner of 3,719 shares; and
(3) the petitioner as the owner of 500 shares.
An issue was raised on behalf of the first respondent as to whether the transfer dated 30th April, 1992 of 500 shares to the petitioner was lawfully registered in the register of members. Section 81(1) of the Act of 1963 provides as follows:
“Subject to sub-section (2), and notwithstanding anything in the articles of the company, it shall not be lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company.”
The issue which arises in relation to the transfer of 30th April, 1992 is that it has never been stamped. The question which arises, accordingly, is whether it is a “proper instrument of transfer” within the meaning of s. 81(1). This issue is dealt with in Courtney on the Law of Private Companies, 2nd Ed., at para. 16.007 as follows:
“One question that arises is whether the phrase ‘proper instrument of transfer’ as used in [the Act of 1963], s. 81, implies that a transfer must be stamped. It is thought, on balance, that it is lawful for a company to register an instrument transferring shares on which stamp duty has not been paid.”
Courtney goes on to quote a passage from the judgment of Leggatt L.J. in Nisbet v. Shepherd [1994] 1 BCLC 300 (at p. 305), where it is stated that the corresponding phrase in the United Kingdom analogue of s. 81 does not mean an instrument complying in all respects with statutory requirements; in the context “proper” means no more than “appropriate” or “suitable”; and what is required is that an instrument must be suitable for stamping. Courtney continues:
“It is thought that the foregoing is the correct interpretation of the phrase ‘proper instrument of transfer’. The failure to stamp a stampable document does not invalidate that document, as stamping is simply a Revenue requirement.”
On that last point, Courtney cites the decision of the Supreme Court in Re Motor Racing Circuit Limited (Supreme Court, 31st January, 1997, unreported).
As a matter of principle, it would seem that the company was entitled to register the petitioner as a member notwithstanding that the transfer of 30th April, 1992 was not stamped.
The requirements in relation to the maintenance of a register of members of a company are contained in ss. 116 to 124 inclusive of the Act of 1963. It is a criminal offence for a company to default in complying with the requirements of s. 116. The petitioner and the first respondent, as directors of the company at the material times, must take responsibility for the failure of the company to fulfil its obligations under
s. 116.
Section 124 provides that the register of members shall be prima facie evidence of any matters by the Act directed or authorised to be inserted therein. However, that provision must be considered in the light of s. 123, which provides:
“No notice of any trust, express, implied or constructive, shall be entered on the register or be receivable by the registrar.”
The conclusion I have reached is that the register of members does not properly record the legal ownership of the 7,938 shares representing the current issued share capital of the company, which I conclude coincides with the beneficial ownership. In other words, I consider that the register of members should currently reflect the following ownership:
(1) the first respondent and the petitioner as the owner of 3,968 shares, by the addition to the first respondent’s shareholding on Folio 11 of the 249 shares which he acquired from Mrs. Kelly and by the transfer by the first respondent into joint names;
(2) the petitioner and the first respondent as the owner of 3,968 shares, on the basis that the transfer from Mrs. Kelly to the petitioner took effect as a transfer of 3,468 shares to be added to the 500 shares of which he is now owner on Folio 9 and of the transfer into joint names; and
(3) the estate of Mrs. Kelly as the owner of 2 shares.
Pre-emption issue
It is only necessary to consider the pre-emption issue in the context of the transfer by Mrs. Kelly, as personal representative of Mr. Kelly, to herself and the transfer dated 30th April, 1992 of 500 shares by Mrs. Kelly to the petitioner. When the subsequent transfers were made in September 1992 and in 1995 both the petitioner and the first respondent were registered holders of shares in the register of members and recorded as members of the company therein.
Mrs. Kelly’s title to transfer the 500 shares she transferred to the petitioner derived from the will of Mr. Kelly and from the transfer in April 1992 by her, in her capacity as personal representative, to herself as beneficiary of the 4,219 shares she inherited from Mr. Kelly. At the date of that transfer Mrs. Kelly was the holder of one share, which was transferred to her by the first respondent in 1987, although she was not the registered holder of one share. The whole purpose of the transfer of the one share to her in 1987 was to obviate pre-emption rights arising in relation to her inheritance from Mr. Kelly. If any issue had arisen in 1992 as to whether her entitlement to transfer the shares she inherited to herself was the subject of pre-emption rights under article 5, then she could have relied on the transfer of 1987 and procured her registration as a member and the legal owner of one share. However, apparently, no such issue arose and I cannot see how it can arise now, almost eighteen years later. Apart from the petitioner, the first respondent and the personal representative of Mrs. Kelly, none of whom, in the light of their subsequent actions, can complain about the transactions in April 1992, all of the persons who were the registered holders of shares in April 1992 ceased to be registered holders almost eighteen years ago.
I take a similar view in relation to the transfer of 30th April, 1992 in favour of the petitioner. When it was executed, on foot of the 1987 transfer from the first respondent, the petitioner was entitled to be registered as legal owner of the 500 shares transferred to him by the first respondent. Although registration had not taken place, that transfer was clearly acted on, because it was regarded as qualifying the petitioner to become a director of the company. If any issue had arisen that there were pre-emption rights which had to be given effect to under article 5 when Mrs. Kelly wished to transfer 500 shares to the petitioner in 1992, the petitioner could have relied on the 1987 transfer and procured his registration as a member and the registered owner of 500 shares. However, apparently, no such issue arose and I cannot see how such issue could arise now. Apart from that, as I have outlined, the three directors of the company, including the petitioner and the first respondent, approved the transfer by Mrs. Kelly to the petitioner in writing at the time.
Stamp duty
The conclusion I have come to in relation to the current legal and beneficial ownership of the shares has involved taking cognisance of transfers which were not stamped when they should have been stamped, namely:
(1) the transfer dated 30th April, 1992 from Mrs. Kelly to the petitioner of 500 shares;
(2) the transfer in September 1992 to the petitioner from Mrs. Kelly, which I have held took effect as to 3,468 shares;
(3) the transfer in September 1992 of 249 shares by Mrs. Kelly to the first respondent;
(4) the transfer in 1995 by the first respondent of the 3,968 shares into the joint names of himself and the petitioner; and
(5) the transfer in 1995 by the petitioner of 3,968 shares into the joint names of himself and the first respondent.
The Court is bound by s. 127 of the Stamp Duty Consolidation Act 1999, sub-section (1) of which provides:
“On the production of an instrument chargeable with any duty as evidence in any court of civil judicature in any part of the State … notice shall be taken by the judge … of any omission or insufficiency of the stamp on the instrument, and if the instrument is one which may legally be stamped after execution, it may, on payment to the officer of the court whose duty it is to read the instrument … of the amount of the unpaid duty, and the penalty payable on stamping the same, be received in evidence, saving all just exceptions on other grounds.”
When the issue arose at the hearing, counsel for the petitioner indicated that the petitioner would undertake to have the relevant unstamped documents stamped.
The Court is not in a position to assess the stamp duty and penalty payable on the three documents in issue here. Therefore, what I propose is that the petitioner obtain an assessment of the relevant amounts due from the Revenue Commissioners.
Thereafter, s. 127 will have to be complied with. Taking an overview of the matter, I consider that compliance should be effected by the company.
No order will be made in this matter until s. 127(1) has been complied with.
Rectification of the register
On 7th January, 2010 the company and the first respondent issued an originating notice of motion (Record No. 2010/10 COS) seeking an order pursuant to s.122 of the Act of 1963 determining whether the register should be rectified to record various transactions which have taken place since 1987 and which have not been recorded in the register. The petitioner was named as respondent on that application. Other than the estate of Mrs. Kelly not being formally before the Court, every person with an interest in the shares in the company is before the Court, as is the company.
As I understand the position, counsel for both sides recognised that it would be necessary for the Court to order the rectification of the register of members to reflect the current issued share capital of the company as a consequence of the buying back and the cancellation of 7,062 shares following the EGM in 1992, and the Court’s findings as to the legal ownership of the shares. The Court has jurisdiction under s. 122 of the Act of 1963, and I propose to make, such an order. The order will direct the company to furnish details of the rectification and a perfected copy of the order of the Court to the Registrar of Companies within 21 days after perfection of the order.
Determination of issues
The answers to the questions for determination by the Court are as follows:
(1) the petitioner is a member of the company and has been since 30th April, 1992; and
(2) the petitioner owns 7,936 shares in the company jointly with the first respondent.
Banfi Ltd. v. Moran & Ors
[2006] IEHC 257 (20 July 2006)
Judgment of Miss Justice Laffoy delivered on 20th July, 2006.
The application
This is an application for an order rectifying the register of members of the fifth defendant (the Company) to allow for the registration of the plaintiff as a member thereon. The application is brought pursuant to s. 122 of the Companies Act, 1963 (the Act of 1963), sub-s. (1) of which provides as follows:
“If –
(a) the name of any person is, without sufficient cause, entered in the register of members or omitted therefrom, in contravention of sub-ss. (1) and (2) of s. 116; or
(b) …
the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.”
Section 116 requires every company to keep a register of members, which must contain certain particulars, including the names and addresses of the members and a statement of the shares held by each.
As it is entitled to do, the plaintiff has brought this application by way of originating notice of motion grounded on affidavit. The application has been heard on the affidavit evidence. Leave was not sought by any party to cross-examine a deponent of his opponent. In some respects there are serious conflicts of evidence on the affidavits. The court cannot resolve such conflicts.
The Company
The Company is a private company limited by shares. It was originally incorporated under a different name on 22nd April, 1995, but it has been incorporated under its current name since 20th June, 2002.
The most recent annual return in relation to the Company filed in the Companies Registration Office on 18th October, 2005 discloses that the only directors of the Company are the first defendant (Mr. Moran) and the second defendant (Ms. Ray), who is the wife of Mr. Moran. It is clear on the evidence that the third defendant (Mr. Kavanagh) was a director of the Company from the date of its incorporation until 19th February, 2004, when he retired on the grounds of ill health. The annual return discloses that the share capital comprises ordinary and A ordinary shares. It is ordinary shares that are in issue here. There are 87,777 ordinary shares, which, according to the annual return, are registered as follows:
• 16,525 in the name of Mr. Kavanagh.
• 16,525 in the name of ICT Nominees Limited (ICT), being the shares in issue here.
• 47,327 in the name of Best Christmas Trees Limited (Best), a company which was incorporated on 7th June, 2001, of which Mr. Moran and Ms. Ray are the directors and shareholders.
• The remaining 4,400 shares in the name of another party who does not feature in these proceedings.
Clause 7 of the articles of association of the Company provides as follows:
“The directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of any share, whether or not it is a fully paid share …”
There is a proviso to clause 7 which has no application here.
Another company, which was incorporated on 28th February, 1989 and had two changes of name before it was incorporated as Emerald Group Limited (the Subsidiary) on 20th June, 2002, is a single-member company and a wholly-owned subsidiary of the Company. The Subsidiary is a trading company which is involved in a scheme under which investors are able to avail of tax advantages from investment in forestry, in this case, Christmas trees. I do not pretend to understand the intricacies of the scheme. However, on the evidence, relying in particular on a report of a financial review carried out by McStay Luby, Financial Consultants, dated 12th June, 2001 for what they refer to as the “Emerald Group”, my understanding of the function of the Subsidiary in the overall scheme is that of managing a series of individual plantations owned or leased by other entities for investors. The husbandry and harvesting requirements of those entities are the drivers of the activity level and the cash flow of the Subsidiary.
The fourth defendant was joined on the application on the basis that he was a director of the Company. On the basis of the evidence I accept that he is not, and never has been, a director of the Company. Therefore he was incorrectly joined in the proceedings. As I understand the position, there has been no appearance on his behalf. Unless the plaintiff or any of the other respondents objects, I propose to strike out the proceedings against him.
The shares in issue
The shares in issue are still registered in the name of ICT, although by virtue of a stock transfer dated 16th May, 2003 ICT transferred 16,525 ordinary shares in the Company to the plaintiff. The stock transfer form was executed by Mr. Moran and Ms. Ray for and on behalf of ICT. Mr. Moran and Ms. Ray certified that the transfer was being made to the beneficial owner of the shares pursuant to a declaration of trust dated 1st December, 1995 in order to show that the transfer was not subject to ad valorem stamp duty. The declaration of trust dated 1st December, 1995, which was executed by Mr. Moran, declared that ICT held 25,325 ordinary shares in the Company, which was then registered by its former name, as nominee of, and on behalf and in trust for, the plaintiff. There followed an irrevocable undertaking to transfer the shares to the plaintiff on request and a further irrevocable undertaking at all times to exercise the right of voting only in accordance with the plaintiff’s instructions. The plaintiff’s stake in the company was reduced to 16,525 shares by virtue of a subsequent transfer of 8,800 shares by ICT to Mr. Moran and Ms. Ray, which gave effect to a sale by the plaintiff to Mr. Moran for IR£11,000.
The plaintiff was incorporated on 17th April, 1991 as a private company limited by shares. David Hasslacher (Mr. Hasslacher) is a director of the plaintiff and this application was grounded on affidavits sworn by him. His case is that in 1995 the shares in the Company the subject of the declaration of trust, which were approximately 30% of the ordinary shares of the Company, represented his original stake dating from 1989 (22.5% of the share capital) in the Subsidiary, together with an accretion acquired when one of the four original promoters left in 1995, bringing the stake up to approximately 30%. Mr. Hasslacher averred that for personal financial reasons in 1990/1991 he was advised by his then solicitors that his shares in the Subsidiary should be held on trust. He also averred that Mr. Moran, who is a chartered accountant, and who was his financial adviser, advised him to purchase a shelf company which would hold his stake in the Subsidiary solely for him and that Mr. Moran arranged for him to acquire the plaintiff, a shelf company, for that purpose. Mr. Hasslacher also averred that the scheme devised by Mr. Moran involved ICT holding shares in trust for the plaintiff.
ICT is a company which is solely owned by Mr. Moran and Ms. Ray. Mr. Moran has denied that he took any part in advising Mr. Hasslacher in relation to settling the shares in trust. He has averred that he understood that his role as company secretary of ICT was to give effect to Mr. Hasslacher’s instructions, which he did. It is not possible to resolve the conflict raised on the affidavit evidence as to whether Mr. Moran advised Mr. Hasslacher in relation to the creation of the trust. I record, for what it is worth, that the evidence establishes that Mr. Hasslacher and the plaintiff made a complaint to the Institute of Chartered Accountants in Ireland (the Institute) in February, 2005 against Mr. Moran. The Complaints Committee of the Institute, in ruling on the complaint, was unable to form an opinion as to whether or not Mr. Moran “advised” Mr. Hasslacher on the transfer of the shares but adjudicated on the complaint on the basis that Mr. Moran “assisted” Mr. Hasslacher to transfer the shares to ICT to be held in trust for the plaintiff. I will return to that ruling later.
It is obvious from the evidence that there was some sort of restructuring of the “Emerald Group” in 1995, whereby the Subsidiary became a single member company and former shareholders of the Subsidiary became the holders of an equivalent shareholding in the Company. While details of that process have not been deposed to, it is clear that the shares in issue on this application, as I have said, represent shares in the Subsidiary held by Mr. Hasslacher in 1989. Ignoring the restructuring in 1995 in the interests of simplicity, the following is the undisputed position in relation to the shares in issue:
• The shares were beneficially owned by Mr. Hasslacher from 1989.
• In 1990/1991 Mr. Hasslacher decided to settle the shares in trust. To that end, in 1991, with the assistance of Mr. Moran, he acquired the plaintiff, a shelf company. It is not clear whether at that stage the shares in the Subsidiary were transferred to ICT in trust for the plaintiff, nor is it clear whether a declaration of trust was executed by ICT in favour of the plaintiff. I assume that ICT became the registered owners of the shares in the register of the Subsidiary. However, nothing much turns on that.
• After the restructuring in 1995, ICT became the registered owner of the shares in the register of members of the Company, but declared in the declaration of trust that it held the shares in trust for the plaintiff. At that stage the shares represented approximately 30% of the ordinary shares in the Company.
• While ICT, which was controlled and managed by Mr. Moran and Ms. Ray, was the registered owner of the shares, it was acknowledged that the plaintiff was the beneficial owner of the shares.
• In 2003, at the request of the plaintiff, the beneficial owner, ICT, acting by Mr. Moran and Ms. Ray, transferred the reduced stake, equivalent to approximately 20% of the ordinary shares of the Company, to the plaintiff. In his replying affidavit in these proceedings Mr. Moran has referred to the stock transfer dated 16th May, 2003 as a “purported” transfer. That is an incorrect description. The transfer was unquestionably effective, a fact that forms the basis of the actions of the first, second and third defendants in August and September, 2003.
Refusal to register the plaintiff as a member
Following the execution of the transfer dated 16th May, 2003, the plaintiff sought to be registered as a member of the Company.
At that time there were three directors of the Company, Mr. Kavanagh, Mr. Moran and Ms. Ray. Mr. Hasslacher had ceased to be a director of the Company when he failed to be re-elected at the Annual General Meeting of 2002. Mr. Kavanagh held approximately 20% of the ordinary shares, that is to say, a stake equivalent to that of which the plaintiff was the beneficial owner. It is not clear on the evidence in whose name the 55% (in fact 55.82%) stake, which the plaintiff averred was owned by Mr. Moran, was registered. By 2005 that stake was registered in the name of Best, a company managed and controlled by Mr. Moran and Ms. Ray. On the evidence, I am satisfied that Mr. Moran and Ms. Ray jointly or severally controlled the 55.82% stake in 2003.
By letter dated 1st August, 2003 from Mr. Moran, as Managing Director of the Company, the plaintiff was informed that the board of the Company had convened on 31st July, 2003 to consider the plaintiff’s request to register the transfer from ICT to the plaintiff and had concluded “that the decision to register or to refuse registration should only be taken once certain clarifications had been received from the applicant”. The plaintiff was informed that, if the information sought was not provided, a decision would be made in any event. By further letter dated 19th August, 2003 from Mr. Moran, as Managing Director, certain information was sought and certain questions were asked. The first item was a question which asked what the Company was gaining by having itself registered and what actions it intended taking as a registered shareholder that could be not accomplished through its beneficial holding through ICT. Information was sought as to the beneficial owners of the plaintiff together with verifying documentation. Its up to date audited accounts, a list of directors, a detailed list of its activities and those of its directors engaged in any way related to Christmas trees and a detailed list of contacts made by the Company or its directors during the previous eighteen months with competitors, suppliers and so forth of the Company and its subsidiaries were also requested. The plaintiff did not furnish the information or documents sought.
However, the lack of response has to be seen in the context of proceedings under s. 205 of the Act of 1963 which were then pending in this Court. The proceedings in question were brought in the matter of the Company on the petition dated 10th July, 2002 of Mr. Hasslacher and the plaintiff against Mr. Moran, Ms. Ray and Best (Record No. 2002 No. 303 COS). Certain aspects of those proceedings were canvassed on this application. In August and September, 2003 there was pending a motion by the respondents, which I understand was by notice of motion dated 3rd March, 2003, in which the respondents sought to strike out the s. 205 proceedings for lack of locus standi in that neither the plaintiff nor Mr. Hasslacher was a member of the Company. There was also pending a motion brought by the petitioners, as I understand it, by notice of motion dated 19th May, 2003, to compel the registration of the plaintiff as a member of the Company. The petitioner’s motion was, apparently, listed before Smyth J. on 10th September, 2003. On the previous day the plaintiff’s solicitors wrote to the defendants’ solicitors in connection with that motion. It is not clear on the evidence what transpired on 10th September, 2003, but it is clear that the adversarial process between the parties to the s. 205 proceedings was approaching its climax.
At a board meeting of the Company held on 17th September, 2003 and attended by Mr. Kavanagh, who acted as chairman, Mr. Moran and Ms. Ray, the board reached a unanimous decision that, in accordance with article 7, it would decline to register the transfer from ICT to the plaintiff. The minute of the meeting, which was put in evidence, indicates that the decision was made after the board had considered “the correspondence and the impact of the registration on all interested parties”. It would seem that the reference to “interested parties” is a reference to “all shareholders of the Company, its creditors, guarantors, its subsidiaries and the employees of the group”, who were referred to earlier in the minute. I have read the minute carefully and I have come to the conclusion that it is not possible to discern from it why the directors considered that the registration of the plaintiff would have an adverse impact on all or any of the interested parties. But on this application the court is not restricted to contemporaneous documents in trying to fathom the reasons and motivation underlying the refusal..
Mr. Moran has averred in his replying affidavit that the decision was taken bona fide in the interest of the Company. He specifically averred that the board considered their position bearing in mind their fiduciary duties to the Company. As to the reasons for refusal, he averred that, in the absence of a response to the letter of 19th August, 2003 requesting information, it “did not appear to be in the best interest of the Company to approve the transfer”. However, that is not recorded in the minute and the minute does not reflect the thrust of the position adopted on this application, that it was the lack of engagement by the plaintiff which caused concern to the board. Mr. Moran also averred that prior to the meeting of 17th September, 2003 a list of guidelines was “drawn up by the Board” of matters which it considered ought to be taken into account. This list has been exhibited. However, the guidelines are not expressly referred to in the board minute, which merely reflects the broad statements in the last two paragraphs of the guidelines as to the requirement to consider the best interests of the Company but not the considerations which preceded them. There is no evidence of the extent to which the directors considered the guidelines or attached weight to them in arriving at their decision.
Mr. Kavanagh, in an affidavit filed on behalf of the defendants, has averred that the account provided by Mr. Moran in his replying affidavit is “completely accurate”. He has set out the reason why the board agreed that the transfer to the plaintiff “should not be approved” was –
“… because the Board of directors had received no co-operation whatsoever from [the plaintiff] with regard to the request to provide information which was requested of it in the letter (dated 19th August, 2003) … . In the light of this failure to address those issues, bearing in mind my fiduciary duty to the company, I was very concerned that the interest of the company as a whole, together with its creditors and shareholders , would be adversely impacted by registration of [the plaintiff] as shareholder. To the best of my knowledge, [the plaintiff] has provided no proper response to the request for assurances and information requested on 19th August, 2003.”
It was submitted on behalf of the plaintiff that the foregoing averment is inconsistent with the minute of the meeting.
Outcome of the Section 205 proceedings
The respondents to the s. 205 proceedings were successful in their contention that, in the absence of the registration of the plaintiff as a member of the Company, the petitioners did not have standing to prosecute the proceedings. In the final order in the proceedings, which was made by Smyth J. on 26th November, 2003, the petition was struck out. In relation to costs, the order provided that the respondents pay the petitioners’ costs of the petition up to 11th October, 2002 and that the respondents recover against the petitioners their costs of the motion filed on 3rd March, 2003, which, as I have stated, I understand to be the motion to strike out. The respondents have appealed the order for costs against them to the Supreme Court.
In his second affidavit sworn in support of this application, Mr. Hasslacher has referred to the comments made by Smyth J. in striking out the s. 205 proceedings. I consider that those comments, which related to the issues then before Smyth J., which were assessed by him against the evidence adduced before, and the submissions made to, him, are irrelevant to the determination of the issues on this application. Accordingly I have had no regard to them.
Mr. Hasslacher in his grounding affidavit averred that it was conceded by counsel for the respondent in open court during the course of the s. 205 proceedings that it was most unlikely that the respondents would under any circumstances allow registration of the plaintiff’s shareholding in the Company to take place. This averment has not been expressly denied by the respondents.
Allegations and counter-allegations
In his grounding affidavit Mr. Hasslacher has made serious allegations against Mr. Moran and Ms. Ray, for instance:
• That after 1995 there was a concerted strategy on their part to take over effective control of the Company and to conduct its affairs in disregard of and to the detriment of the Company and its shareholders.
• That they acted in a manner which constitutes a breach of fiduciary duty in diverting assets, which I understand to mean business opportunities in relation to new plantations, from the Subsidiary to Best, their company.
• That through Best they planned to acquire the entirety of the shareholding in the Company at a time and for a consideration which would be detrimental to the interests of the plaintiff and Mr. Hasslacher.
• That in 2002 they excluded Mr. Hasslacher from the affairs of the Company and the Subsidiary.
Mr. Hasslacher has averred that the refusal to enter the name of the plaintiff on the register of members of the Company has been actuated by fraud and mala fides on the part of the respondents, the alleged ultimate motivation being to enable Mr. Moran and Ms. Ray to continue their activity of diverting business from the Subsidiary to Best.
In his replying affidavit Mr. Moran accused Mr. Hasslacher of attempting to “re-run” the s. 205 proceedings, which he asserted were unnecessary and divisive. He averred that no substance had been put forward to support Mr. Hasslacher’s “scandalous suggestion”, with which he took issue, that he had been guilty of fraud and he characterised this aspect of Mr. Hasslacher’s affidavit as “frivolous and vexatious”. He described Mr. Hasslacher’s endeavour to have the plaintiff registered as a member of the Company as a gambit in his overall scheme to undermine the business of the Company and the Subsidiary. He refuted all contentions by Mr. Hasslacher that he (Mr. Hasslacher) did not have a full role as a director in the Company. He also refuted the various contentions of Mr. Hasslacher that he or Ms. Ray acted improperly in any aspect of the running of the business of the Subsidiary or the Company. He described as “baseless” the assertion that the activities of Best were calculated to undermine the Company and countered that Best had, in fact, provided very substantial financial support for the Company and the Subsidiary.
It was submitted on behalf of the plaintiff that Mr. Moran had not expressly denied Mr. Hasslacher’s assertion that Mr. Moran and Ms. Ray had diverted, and were continuing to divert, business opportunities from the Subsidiary to Best, thereby inviting the court to infer a tacit admission on the part of Mr. Moran. There was also a debate as to whether the word “refute” comprehends denial of an allegation. Whatever the view of purists and lexicographers of the usage of “refute” as meaning “deny”, in assessing evidence on affidavit a court must ascertain the intended meaning of the deponent from the general thrust of the language used. In this case the court has to ascertain what Mr. Moran intended to convey in the two affidavits sworn by him. I have no doubt that Mr. Moran intended to deny all allegations of fraud, mala fides, misfeasance, breach of duty and all other wrongs alleged by Mr. Hasslacher against him and Ms. Ray.
The court was also invited to draw inferences from documents which have been exhibited, for example, the McStay Luby report, a finance planning document dated March, 2002 prepared by Mr. Moran, and a letter dated 28th May, 2002 from Anglo Irish Bank Corporation plc outlining the general conditions on which the bank would be prepared to provide continuing facilities to the Company. In my view, it would not be proper to draw the inferences the court was invited on behalf of the plaintiff to draw from those documents, because I am by no means satisfied that they give a complete picture of the matters to which they relate or that their true import can be gleaned from considering them on their own or, in any event, it is as contended for by the plaintiff.
There is a total conflict on the affidavit evidence as to whether Mr. Moran and Ms. Ray have engaged in the wrongful conduct alleged against them. That conflict cannot be resolved. Therefore, it is not possible to find that the plaintiff has established an element of its core allegation, which is that the primary reason for refusal of the registration of the plaintiff as a member of the Company was to pre-empt the plaintiff from acquiring standing to prosecute s. 205 proceedings, so that Mr. Moran and Ms. Ray would thereby avoid the consequences of such proceedings. Those consequences, the plaintiff has asserted, are that Mr. Moran and Ms. Ray would be exposed to potential personal liability for the past misfeasance alleged by the plaintiff and would be prevented from continuing in their activity of diverting business from the Subsidiary to Best. Given the conflicting affidavit evidence it is not possible to make any finding as to the probability of such consequences ensuing the prosecution of s. 205 proceedings.
The decision of the Complaints Committee of the Institute
As I have already stated, the Complaints Committee of the Institute has adjudicated on a complaint by Mr. Hasslacher and the Company against Mr. Moran. The decision of the Complaints Committee was communicated to Mr. Moran in a letter dated 12th May, 2005 which sets out the decision as follows:
“The decision of the Complaints Committee was that a prima facie case had been made out. In reaching that decision the Committee was of the view that you had assisted Mr. Hasslacher to transfer his shares to [the plaintiff], to be held in trust by ICT … . The Committee was of the view that you failed to manage the conflict of interest which arose for you as a director of the Emerald Group Limited (sic) by reason that you participated in the decision of the board not to register the company as a shareholder in the company. The complaints committee were firmly of the view that you should not have participated in that decision-making process.”
For completeness, I should record that the Committee decided that no further action would be taken against Mr. Moran and that the matter is closed, as far as the Institute is concerned.
The Law
There was no real divergence between counsel for the plaintiff and counsel for the respondents as to the legal principles which govern the determination of the issue whether a transferee of shares was refused registration as a member of a company “without sufficient cause”. Both relied, inter alia, on the comprehensive review and analysis of the relevant authorities which is to be found in Courtney on The Law of Private Companies (2nd Edition, 2002, Butterworths). Where they diverged was in relation to the application of those principles to the facts of this case.
The relevant principles for present purposes are the following:
(1) The exercise of the directors’ power to refuse to register must be gauged by reference to the relevant regulation in the company’s articles of association, which may take many forms. However, in all cases the powers of the directors to refuse registration must be exercised bona fide and for the benefit of the company as a whole (Courtney, para. 16.037).
(2) Where, as here, the material part of the relevant regulation replicates verbatim model reg 3 of Table A, Part II, the directors have the most unfettered of powers (Courtney, para. 16.038). The breadth of the discretion given in an article so worded was recognised by Lord Greene M.R. in In re Smith and Fawcett Limited [1942] 1 Ch. 304 in the following passage in his judgment (at p. 308):
“In the present case the article is drafted in the widest possible terms, and I decline to write into that clear language any limitation other than a limitation, which is implicit by law, that a fiduciary power of this kind must be exercised bona fine in the interests of the company. Subject to that qualification an article in this form appears to me to give the directors what it says, namely, an absolute and uncontrolled discretion.”
(3) The Table A, Part II model permits the directors to decline registration without giving any reasons for their decision. As Courtney points out (at para. 16.040) it was recognised by Black J. in In re Hafner [1947] I.R. 426 (at p. 440) that there are exceptions to that general rule. However, in this case, the respondents gave reasons in the minute of the meeting of 17th September, 2003 and in the affidavits filed by them in these proceedings. Accordingly, unlike the Hafner case, this is not a case in which the plaintiff has to penetrate the total reticence of the directors. As Courtney points out (at para. 16.042), the directors are not confined to the reasons they gave at the time of the refusal: Village Cay Marine Limited v. Ackland (Barclays Bank Plc third party) [1998] 2 B.C.L.C. 327.
(4) As to the nature of the court’s jurisdiction under s. 122 and the process the court is required to engage in, I agree with the view expressed in Courtney (at para 16.048) that is to review the result of the exercise of their power by the directors where it is established that they have acted otherwise than bona fide and for the benefit of the company. In In re Smith and Fawcett Limited Lord Greene M.R. emphasised the subjectivity of the discretion which is reposed by an article on the lines of the article at issue here in the directors. He stated (at p. 306):
“They must exercise their discretion bona fide in what they consider – not what the court may consider – is in the interests of the company, and not for any collateral purpose.”
In In re Hafner, on appeal to the Supreme Court, Sullivan C.J. recorded (at p. 470) a concession made by counsel for the defendants that the power conferred by the directors by the relevant article was a fiduciary power to be exercised bona fide in the interests of the company, the exercise of which might be controlled by the court if there was evidence which justified the conclusion that the directors had acted improperly. Later in his judgment Sullivan C.J., having adverted to the difficulty which the plaintiff faced in seeking to establish that the actions of the directors was not a bona fide exercise of their fiduciary power because the directors were not obliged to assign any reason for their refusal to register, went on to identify the burden placed on the plaintiff as follows (at p. 471):
“And accordingly the plaintiff had to adduce evidence of relevant circumstances from which the court could legitimately infer that the directors had acted improperly.”
The Supreme Court affirmed the finding of Black J. in that case, which was a witness action, that the directors’ exercise of their discretion was actuated by an illegitimate motive (to facilitate payment of exorbitant emoluments to themselves) and, as such, was not a bona fide discharge of their fiduciary duty.
(5) As is pointed out in Courtney (at para. 16.056), the rights of a transferor of shares are not entirely dependent upon common law principles. If the directors have exercised their powers in a manner oppressive to, or in disregard of, a transferor-member’s interests he may bring a petition under s. 205. Further, the personal representative of a deceased member has locus standi by virtue of s. 205(6).
Application of the law to the facts
Applying the foregoing principles, the crucial question in determining whether the refusal of the board of the Company to register the plaintiff was without sufficient cause is whether or not, in exercising their discretion under article 7, the members acted bona fide in what they considered to be in the interests of the Company as a whole. To succeed on this application to have the register rectified, the plaintiff must discharge the burden of proving that they did not.
As I have stated, this is not a case in which the court has to penetrate total reticence on the part of the directors, as might have been the case if the directors had stood on their right to remain silent on their reasons or reason for refusing to register the plaintiff as a member of the Company. The defendants broke their silence by putting in evidence contemporaneous documentation and by adducing affidavit evidence as to why they refused to register. So there is evidence from both sides to be assessed.
On the defendants’ side, it is necessary to abstract from the evidence what is being advanced by the first, second and third defendants as the reason for the refusal, as distinct from the bald assertions made in the minute and by their deponents that they acted bona fide in the interest of the Company. As I understand it, the reason advanced is that it was the failure of the plaintiff to respond to the letter of 19th August, 2003, to furnish the information sought and to engage with the board which gave rise to the belief on the part of the board members that to accede to the registration of the plaintiff as a member of the Company would not be in the interest of the Company. Accepting as I must, in the absence of a challenge through cross-examination, the evidence of Mr. Moran and Mr. Kavanagh at face value, the question which must be asked is whether, against the background of the pending s. 205 proceedings and, in particular, the pending motions, such subjective belief could have been justified in the context of a requirement to act in good faith. It is not necessary to agree with the submission made on behalf of the plaintiff that the request for information was a mere contrivance to conclude that such belief could not have been justified. At the time the request was made, realistically, Mr. Hasslacher and the Company could not have engaged with Mr. Moran and Ms. Ray, who were the respondents in the s. 205 proceedings, in the manner suggested, nor could the directors of the Company realistically have expected the petitioners in the s. 205 proceedings to so engage. Aside from that, on the totality of the evidence, I am not satisfied that the plaintiff’s failure to respond to the letter of 19th August, 2003 was the real reason for the refusal to register.
The evidence on the plaintiff’s side is that the reason for the directors’ refusal to register the plaintiff as a member was to prevent the plaintiff having standing to prosecute s. 205 proceedings against two of the directors, Mr. Moran and Ms. Ray. Even without being in a position to make a finding as to what would have been the strength of the plaintiff’s case and the likely outcome of the proceedings had the plaintiff standing to prosecute such proceedings, I am satisfied that the real reason for the refusal to register the plaintiff as a member was to ensure that the plaintiff would never have standing to prosecute such proceedings against Mr. Moran and Ms. Ray. The plaintiff’s beneficial shareholding represented the interest of Mr. Hasslacher in the Company, which interest had existed since 1989. Since 1995 at least, and perhaps earlier, ICT held that interest in trust for the plaintiff and through the plaintiff for Mr. Hasslacher. Mr. Moran and Ms. Ray were the directors of ICT and, as such, owed fiduciary duties to ICT, to the plaintiff and Mr. Hasslacher. From 1995 those arrangements were formalised in the declaration of trust in 1995 and remained unchanged thereafter. What changed in the relationship of the human agents of the plaintiff and ICT was that in 2002 Mr. Hasslacher initiated the s. 205 proceedings against Mr. Moran and Ms. Ray. The proper inference to be drawn from the conduct of the defence of the s. 205 proceedings by Mr. Moran and Ms. Ray, in my view, is that the reason for the refusal to register the plaintiff as a member was to ensure that the pending proceedings would be struck out and that the plaintiff would not be in a position to initiate any further proceedings under s. 205. Indeed this is resonated in the first question in the letter of 19th August, 2003.
That leads to the question whether, in refusing to register the plaintiff as a member so as to ensure that it would not be in a position to prosecute s. 205 proceedings, the directors were acting bona fide in the interest of the Company as a whole. It was submitted on behalf of the plaintiff that, in making that decision, Mr. Moran and Ms. Ray were consulting their own interest, not the interest of the Company. I have no doubt that the proper inference to draw from the evidence and, in particular, the evidence as to the defence of the then pending s. 205 proceedings, is that Mr. Moran and Ms. Ray were motivated by self interest, not the interest of the company as a whole, in participating in the decision to refuse to register the plaintiff. Their participation was necessary to carry the resolution to refuse. The minute of the meeting of 17th September, 2003 records no input by Mr. Moran other than to produce the letters of 1st August, 2003 and 19th August, 2003, to be part of the consensus that the application for registration should be considered without further reference to the plaintiff which had been given every opportunity to provide the information and support of its application, and to read article 7. Ms. Ray’s input, as recorded, was that any change in the registered owners of shares needed to take full account of the interests of all of the interested parties and should have no potential disadvantage for them. The minute records that she also made the point that, whether or not the plaintiff was registered as a shareholder, the board “had a duty to ensure that its interest in the Company as a beneficial shareholder should be protected by the directors”. The minute records that the board agreed that, regardless of the decision reached by the board, “the directors would act to protect the interests of all the beneficial owners including [the plaintiff]”. When set against the reality of the plaintiff’s position in consequence of the decision the board made, I think it is not unreasonable to describe Ms. Ray’s input and the board’s consensus as a meaningless platitude.
Mr. Moran and Ms. Ray could, if they wished, ensure that the interests of the plaintiff are protected by enabling it to pursue the remedies which are open to all shareholders since 1963, the remedies available under s. 205, either through the trustee which is the registered owner of the shares, or by allowing it to become registered. They have effectively closed off one avenue by the decision to refuse to register the transfer to the plaintiff and they are in control of the other avenue. Having regard to the position they have adopted in relation to registering the transfer, and given their position as directors of ICT, the registered owner of the plaintiff’s shares, it is reasonable to assume that ICT as a transferor member will not be pursuing the statutory remedies available under s. 205 on behalf of the plaintiff. Through ICT, and in the face of their fiduciary duties, Mr. Moran and Ms. Ray have maintained a stranglehold on the plaintiff’s shareholding in the Company and have wholly stymied the plaintiff in pursuing the statutory redress which is available to all shareholders. I have no doubt, on the evidence, that in participating and, in effect, carrying the resolution to refuse to register the plaintiff as a member they were pursuing their own self interests, not the interests of the Company as a whole.
Delay
The defendants’ primary answer to the plaintiff’s application was that the plaintiff has not established that the refusal to register was without sufficient cause. The defendants’ secondary position was that the relief claimed should be refused by reason of the plaintiff’s unexplained delay in not initiating these proceedings until 17th October, 2005. The basis on which it was asserted that delay could defeat the plaintiff’s application was that the rectification of the share register is essentially an equitable remedy and the court should, in exercising its discretion, take account of equitable principles.
Section 122 has created a statutory remedy of rectification and it has not imposed any time limit for bringing such application. That is not to say that situations could not arise in which a court would consider that it would be inappropriate to exercise its discretion because of delay in bringing an application if it was shown that delay was prejudicial to the Company. However, in this case, there is no evidence of any prejudice to the Company by reason of the fact that the application directed by the register was initiated more than two years after the refusal. Therefore, in my view, that time gap is not a bar to relief under s. 122 in this case.
Order
Accordingly, there will be an order directing the rectification of the register of the members of the Company to provide for the registration thereon of the plaintiff as the owner of 16,525 ordinary shares.
Approved: Laffoy J.
Lee v. Buckle
[2004] IEHC 146 (30 July 2004)
Judgment of Miss Justice Laffoy delivered on 30th July, 2004.
Background
Lee Overlay Partners Limited (the Company) is a company limited by shares which was incorporated in the State on 4th March, 1999. The applicant is the President and Chief Investment Officer of the Company. On 29th June, 1999 the respondent accepted an offer of employment with Adrian Lee Services Limited (the Services Company), which was then known as Babol Limited and which is incorporated in the Isle of Man. The respondent contends that the Services Company was only a payroll company and that, in reality, his employer was the Company. The issue of the respondent’s real employer is not a matter for determination on this application. The respondent’s employment ceased with effect from 25th July, 2003. There is a dispute as to the basis of such cessation: the applicant contends that the respondent voluntarily left his employment; the respondent contends that he was constructively dismissed. There are proceedings pending before the Employment Appeals Tribunal in relation to the issue of the cessation of the respondent’s employment. The basis of such cessation is not a matter for determination on these proceedings.
At the date of the cessation of his employment the respondent was the owner of 1,502 “A” ordinary shares of €1 each and 845 “B” ordinary shares of €1 each in the capital of the Company. His shareholding represented 21.45% of the share capital of the Company. It is common case that the ownership of shares in the Company is regulated by the agreement mentioned in the title hereof, namely, an agreement of 30th July, 1999 (the Shareholders Agreement) made between Warburg Pincus Ventures International, Lp. and others of the first part, the persons named as Management Shareholders in Schedule 1 to the Agreement, who include the applicant and the respondent, of the second part, and the Company of the third part. The governing law of the agreement is English law.
The provisions contained in sub-clauses 15 to 21 inclusive of clause 9 of the Shareholders Agreement regulate what is to happen to the shares of a Management Shareholder who ceases to be employed by the Company or the Service Company, as the case may be. In summary, the provisions deal with four different scenarios in which such employment may cease, namely:
(1) where it is the result of the Management Shareholder terminating his employment;
(2) where it is the result of the Management Shareholder having been dismissed from his employment;
(3) where it is the result of death, illness or disability; and
(4) where it is the result of some other circumstance.
The applicant contends that the respondent comes within the scenario set out at (1) above, having terminated his contract. The respondent contends that he was constructively dismissed and that he comes within the scenario referred to at (4) above. If the applicant is correct, then he has a right, referred to as a “Call Right” in the Shareholders Agreement, on giving not less than one month’s notice in writing to the respondent to purchase the respondent’s shareholding at a price being the lesser of par and “Fair Value”, as defined. If the respondent is correct, then, while the applicant has a Call Right it is exercisable at Fair Value and the respondent has a right, referred to as a “Put Right”, which is exercisable by one month’s notice in writing and obligates the applicant to purchase all of his shares at Fair Value. Fair Value, in default of agreement, is open market value determined by an independent investment bank or corporate finance house appointed by agreement or, in default of agreement, by the Director General of the London Investment Banking Association. In the event of a Call Right being exercised and the respondent failing or refusing to do all acts or things necessary to effect the transfer of the shares, the respondent is deemed to have conferred an irrevocable authority on the Company to appoint a person to execute on his behalf a transfer of the respondent’s shares in his favour.
On 9th July, 2003 the applicant served notice in writing on the respondent under the Shareholders Agreement of his wish to exercise his Call Right on the basis that the cessation of the respondent’s employment fell within the scenario set out at (1) above. The applicant enclosed with the notice a cheque for €2,347, representing the par value of the shares, and a stock transfer form for execution. An issue arose as to whether the Call Right could be exercised prior to the termination of the respondent’s employment and a similar notice was served by the applicant on 5th September, 2003 “to put the matter beyond doubt” and a further cheque for €2,347 was proffered, the previous cheque having been cancelled.
The respondent, not accepting that the applicant is entitled to exercise a Call Right at a lesser of par and Fair Value, has not negotiated the applicant’s cheque, nor has he executed the stock transfer form. On 22nd October, 2003 David J. Kirkpatrick, who was expressed to be acting pursuant to the irrevocable authority granted under the Shareholders Agreement, executed a stock transfer form transferring the respondent’s shares to the applicant. On this application the applicant has averred that the transfer was subject to a mortgage and charge in favour of Warburg Pincus Equity Partners Lp. of 7th January, 2003 on foot of which in excess of US$1.85 million is secured.
On 21st November, 2003 the respondent served notice on the Company in accordance with Order 46, rule 6 of the Rules of the Superior Courts, 1986 that his shareholding in the Company is subject to the provisions of the Shareholders Agreement and “to stop the transfer” of the shares.
Following the cessation of his employment, the respondent took up employment with Merrill Lynch Investment Management. The applicant contends that the respondent’s new employer is a competitor of the Company, but this is disputed. That dispute cannot be resolved in these proceedings.
In outlining the background to this application, I have recorded what has happened. For the avoidance of doubt, nothing in this judgment is to be taken as the expression of a view as to the proper compliance with the formalities prescribed in the Shareholders Agreement in relation to the exercise by the applicant of, and compliance by the respondent with, the Call Right.
This Application
On this application the applicant seeks an order ceasing the operation of “the Notice to Restrain Transfer of Stock”, namely, the notice dated 21st November, 2003 in respect of the respondent’s shares in the Company and served on that day. The evidence before the court is contained in four affidavits sworn by the applicant and three affidavits sworn by the respondent.
The Rules
Order 46 of the Rules deals with charging orders and stop orders. Part III, which contains rules 5 to 13 inclusive, deals with a notice to restrain transfer of stock.
Rule 5 defines the expression “company”. I have no doubt that the Company comes within that definition. Rule 6, under which the notice of 21st November, 2003 was served provides as follows:
“Any person claiming to be interested in any stock standing in the books or inscribed in the register (within the jurisdiction) of a company may, on an affidavit by himself or his solicitor in the Form No. 27 in Appendix C, and on filing the same in the Central Office with notice in the Form No. 28 in Appendix C, and on procuring an attested copy of the affidavit and a duplicate of the filed notice authenticated by the seal of the High Court, serve the attested copy and the duplicate notice on the Company.”
The title of Form No. 27 refers to the Chancery (Ireland) Act, 1867, although that Act is not referred to in the body of Order 46.
The effect of service of notice is dealt with in Rule 10 which, insofar as is relevant for present purposes, provides as follows:
“From and after the service of the attested copy of the affidavit and of the duplicate of the filed notice, it shall not be lawful for the company to permit the stock specified in the notice to be transferred . . . so long as the notice shall remain operative.”
Rule 11, under which this application is brought, provides as follows:
“A notice filed under rule 6 may at any time be withdrawn by a person by whom or on whose behalf it was given on a written request signed by him, or its operation may be made to cease by an order to be obtained by motion on notice duly served on any other person claiming to be interested in the stock sought to be affected by the notice.”
Rule 12 provides that if, while a notice under rule 6 continues in force, the company receives from the registered owner of the stock a request to permit the stock to be transferred, the company shall not be authorised, without the order of the court, to refuse to permit the transfer for more than eight days after the date of the request. Accordingly, the Rules envisage a notice served under rule 6 being rendered ineffective in any one of three ways: the withdrawal of the notice by the person who served it; an order under rule 11; or, where the notice is served by a person other than the registered owner of stock in the company’s share register, by default in obtaining a court order restraining transfer under rule 12.
The text of Form No. 28 in Appendix C is of interest. The notice is addressed to the company in which the shares are held. It provides as follows:
“Take notice that the following stock (or shares) in the capital of your company (or as the case may be), namely (set out particulars) is comprised in (or settled by) and is now subject to the trust of the above-mentioned settlement (or will or as the case may be); and accordingly, this notice is to stop the transfer of the said stock (or shares) . . . pursuant to Order 46, rules 5 to 13, of the Rules of the Superior Courts.”
The affidavit in Form No. 27 of Appendix C is designed to show that the deponent has a beneficial interest in the stock or shares.
The provenance of rules 5 to 13 is also interesting. Similar provisions are to be found in rules 5 to 13 of Order XLVI of the Rules of the Supreme Court (Ireland) 1905. Rule 4 of the same Order provided that no writ of injunction should thereafter be issued under the Chancery (Ireland) Act, 1867 (30 & 31 Vict., c. 44), s. 171. In fact s. 171 had been repealed by the Statute Law Revision (No. 2) Act, 1893 (56 & 57 Vict. c. 54). A notation in Wylie on “The Judicature Acts (Ireland)” (1906) states that rules 5 to 13 superseded the provisions of ss. 171 to 174 of the Act of 1867.
There are remarkably few significant variations between the provisions of the 1905 Rules and the current provisions. One significant variation is that the 1905 Rules applied only to public companies, not to private companies. Rule 10 in relation to the effect of service of a notice provided that service should have the same force and effect against the company –
“as a statutory writ of injunction duly issued under the Chancery (Ireland) Act, 1867 . . . would have had if these rules had not been made.”
It was noted in Wylie that the effect of service was merely temporary and that it required to be followed up by proceedings to restrain a transfer, referring to rule 12, which was in similar terms to rule 12 of the current Order 46.
Submissions
Before outlining the submissions made on behalf of the applicant and the respondent, it is necessary to record that it is accepted that, for the purposes of the application, once the applicant exercises his Call Right, the respondent is obliged to sell his shares to the applicant. In other words, it is accepted that the application can be determined on the basis that what is in dispute between the parties is the quantum of the purchase price; whether it is the lesser of par and Fair Value, as defined in the Shareholders Agreement, or Fair Value as so defined. An averment by the respondent that the measure of Fair Value for his shareholding is €4 million, provoked an averment in response from the applicant that such quantification is “wildly incorrect”.
It is acknowledged that this is an unusual application. Counsel were unable to identify any authority directly in point, and it would appear that there is no modern authority.
Applicant’s Submissions
Counsel for the applicant advanced two grounds on which it was urged that the proper course for the Court is to cease the effect of the stop notice.
First, he submitted that a stop notice served under Order 46, rule 6 is akin to a lis pendens registered against land. Each is a means of giving notice that there is a dispute in relation to a res and of protecting the interest in the res of the person registering the lis pendens or serving the stop notice. The rationale of affording this means of protection is that the res in dispute has an intrinsic value. Shares have an intrinsic value because of the rights which ownership of them vests in their owner. However, by analogy to the position which pertains in relation to a lis pendens, which is vacated when the registrant no longer has a claim to the land, a stop notice should be ceased when the person who has served it can no longer claim the shares. In the instant case, as it is accepted that there is an obligation on the respondent to sell the shares to the applicant, the respondent does not have rights in relation to the res, rights qua shareholder, which require to be protected by a stop notice.
Secondly, it was submitted that to allow the stop notice to continue would have the practical consequence of permitting the respondent to acquire a quasi security for his monetary claim against the applicant before obtaining judgment, which the court should not allow. In support of this submission, counsel referred to the decision of the Supreme Court in O’Mahony v. Horgan [1995] 2 IR 411, in which the Supreme Court set out the criteria which should be established prior to the grant of a Mareva type injunction. In setting forth the principles underlying the grant of Mareva injunctions, Hamilton C.J. stated as follows at p. 417:
“The common law, traditionally, expresses the principle that the plaintiff is not entitled to require from the defendant, in advance of judgment, security to guarantee satisfaction of a judgment that the plaintiff may eventually obtain.”
Having outlined the emergence of the Mareva type injunction, Hamilton C.J. highlighted one of the limits of the Mareva relief in the following passage at p. 419:
“In Polly Peck International Plc v. Nadir [1992] 4 All ER 769 both the Master of the Rolls and Scott L.J. stressed that such relief is not intended to give security in advance of judgment but merely to prevent the defendant from defeating the plaintiff’s chance of recovery by dissipation of assets.”
In his first affidavit the applicant has averred that the Company is prejudiced by the respondent remaining a shareholder of the Company because, as such, he is entitled to examine the books, records and accounts of the Company and the Company is obliged to supply him with all information in such form as he may reasonably require to be kept properly informed about the business and affairs of the Company. The Company also wishes to hold its annual general meeting and, in order to do so, it would be necessary to send copies of the annual accounts to the members of the Company. The applicant has expressed concern about such “potentially commercially sensitive information” being available to the respondent. In his second affidavit the applicant has averred that it is very difficult to market the services of the Company effectively in circumstances where shares are held by individuals other than the investment professionals who are employed by the Company.
In his first affidavit the applicant has undertaken to pay such additional sum as may be due and owing to the respondent if it transpires that the respondent is entitled to Fair Value for his shares.
Respondent’s Submissions
Counsel for the respondent pointed out that there was no evidence before the court that the applicant had sought to ascertain the lesser of par and Fair Value. He had tendered par, which he was not entitled to do.
It was submitted that the applicant is not entitled to get a benefit on this application which he would not get otherwise. Having exercised his Call Right at par, the applicant is trying to get the benefit of a judgment in his favour that the respondent is bound to sell at par. He is getting ownership and control of the respondent’s shares. What the court has to weigh in the balance, it was submitted, is the respondent endeavouring to protect his assets in reliance on Order 46 and the applicant trying to protect his position before determination of the value of the respondent’s shares.
It was submitted that the analogy of a lis pendens is not apt. In the case of a lis pendens there are two parties: the claimant and the legal owner. Here there are three parties: the legal owner; the Company; and the claimant. A lis pendens is registered against the legal owner. In the instant case, as a stop notice has been served by the legal owner, it was submitted that the applicant could seek an injunction restraining the respondent from disposing of his shares pending resolution. That situation would be the equivalent of the registration of a lis pendens.
This is not a situation in which the respondent is seeking to gain an advantage before the trial of an action, it was submitted. That is what the applicant is endeavouring to do, not having advanced Fair Value for the respondent’s shares.
It was submitted that the affidavits did not disclose any potentiality for damage to the applicant or the Company, or any prejudice.
Further, it was suggested that in determining the issue as to whether to cease the stop order, the court should apply the normal principles which are applied in determining whether an interlocutory injunction should be granted as set out by the Supreme Court in Campus Oil Ltd. v. Minister for Industry and Energy [1983] I.R. 88. It was submitted that there is a fair issue to be tried as to whether the respondent is entitled to Fair Value for his shares and that the balance of convenience favours continuing the stop notice until such time as that issue is determined. On this point, counsel for the applicant responded that this is not an interlocutory application. It is an application which will lead to a final order.
Finally, it was suggested that if the restraint on the transfer is not to continue, the proper course is for the applicant to lodge in court a substantial sum to meet the respondent’s claim.
Conclusions
It seems to me that the first step is to identify the function of the court in this matter. Its only function is to determine whether the operation of the notice served by the respondent under rule 6 should cease. In the absence of any guidance in the Rules and in the absence of any modern authority, this determination must be based on principle.
There is a dispute between the parties which arises out of the respondent’s ownership of shares in the Company. There are no proceedings in existence in this court in relation to that dispute. It has been conceded, properly in my view, that for the purposes of these proceedings the dispute can be regarded as a dispute in relation to the appropriate price to be paid to the respondent for his shareholding. The outcome of any proceedings initiated by the respondent to have the dispute resolved, if successful, would be a monetary award.
While the lis pendens procedure differs from the stop notice procedure the jurisprudence which has evolved in connection with the former does afford guidance as to how the issue which arises on this application should be determined.
A registered lis pendens is a creature of statute. Section 10 of the Judgments (Ireland) Act, 1844 provides that no lis pendens can bind or affect a purchaser or a mortgagee who has no express notice of it, unless and until a memorandum containing the requisite details concerning the suit is registered in court. The objective of the system of registration of a lis pendens introduced in the 1844 Act was to provide a mechanism whereby a person pursuing a claim in respect of land could give notice to the world at large of the litigation in which he was pursuing his claim, so that a person dealing with the owner of the land would take the land in specie free of such claim if the claimant was not protected by registration of the pending action, and, conversely, such registration would preserve the land in specie to satisfy the claim, if successful.
The vacation of a lis pendens is also governed by statute. Section 2 of the Lis Pendens Act, 1867 (which the Supreme Court in Flynn v. Buckley [1980] I.R. 423 held applied to Ireland) provides that the court before which the property sought to be bound is in litigation may “upon the determination of the lis pendens, or during the pendency thereof, where the court shall be satisfied that the litigation is not prosecuted bona fide, make an order, if it shall see fit, for the vacating of the registration without the consent of the party who registered it . . .” It is well settled that a court will vacate a lis pendens when the claim in the litigation will only result in an award of damages (cf judgment of Costello J. in O’Connell v. McCarthy [1982] I.R. 161 at p. 178). The rationale for continuing its registration no longer exists when the claim cannot be satisfied by getting the land in specie, for example, where there is a decree for damages in lieu of specific performance, as happened in O’Connor v. McCarthy.
The differences between the lis pendens procedure and the stop notice procedure are obvious on the face of the text of Form No. 28, which is quoted above. First, the stop notice is addressed to the company, not to the world at large. Secondly, the stop notice operates like an injunction restraining the company from transferring the shares, whereas priority as between claimants is determined by the existence of the lis pendens.
On the basis of the terminology of Forms Nos. 27 and 28, I think it is reasonable to infer that the primary objective of the procedure provided for in rules 5 to 13 of Order 46 is to protect a beneficial interest in shares against actions by the person who is registered as the owner of the shares in the share register of the company. Having said that, no point was taken on this application that the person who is registered in the share register as the owner of the shares cannot avail of the procedure. Given the existence of the mechanism in the Shareholders Agreement whereby the respondent’s ownership of the shares in the share register can be deleted without his consent, in my view, the respondent was entitled to avail of the procedure.
Reading the provisions of rules 5 to 13 inclusive as a whole, in conjunction with the relevant forms in Appendix C, it is clear that the procedure provided for is to give the company notice of a claim to the shares adverse to the title of the person who may appear as the owner of the shares in the share register. The claim does not have to be a claim which is being pursued in litigation. However, it is clearly envisaged in rules 11 and 12 that the company is not to be restrained from effecting a transfer of the shares indefinitely without the intervention of the court. The note in Wylie referred to above supports this interpretation.
As to when the court should exercise its jurisdiction to cease the operation of the stop notice, I am satisfied that the core submission made by counsel for the applicant is correct: that once it is acknowledged that the ultimate outcome of the respondent’s claim, if he is successful, will be a monetary award and not the retention of the shares, the respondent is not entitled to have the stop notice continued. The procedure is designed to preserve the shares in specie while there is an unresolved claim or a dispute as to the entitlement to the shares in specie, so that they will be available to satisfy the claim, if successful. It operates until that claim or dispute is resolved or the court otherwise orders. The rationale for continuing the stop order no longer exists when the claimant ceases to be entitled to the shares in specie.
As it is acknowledged in the instant case that, whatever the outcome of the dispute between the parties, the respondent will not be entitled to retain the shares in specie, in my view, the procedure provided for in rules 5 to 13 is defunct, because its underlying rationale no longer exists.
The dispute between the parties as to the appropriate price for the respondent’s shares, having regard to the proper interpretation of the circumstances of the respondent ceasing to be in the employment of the Company or the Service Company, remains. On this application, which is solely related to the issue as to whether the operation of the stop notice should cease, the court can express no view on, or make no provision whatsoever in relation to, that dispute.
Order
There will be an order ceasing the operation of the notice served by the respondent on the Company on 21st November, 2003.
In the Matter of the Dublin North City Milling Co. Ltd.
and In the Matter of the Companies Acts, 1862 to 1907.
High Court of Justice.
Chancery Division.
3 February 1909
[1909] 43 I.L.T.R 121
Meredith M.R.
Meredith, M.R.
This case is a difficult one, and my decision may have effect upon many shares in other companies far in excess of the amount involved in the present case. The question ultimately narrows itself to this point: Does the fact that Serjeant O’Connor’s client, Spicer, being already a member of the shareholders of the Dublin North City Milling Co., entitle him to call on the company to give their reasons for refusing to transfer to him additional shares into his name, or does it not so entitle him? The general rule applicable to cases of this description is clear. Varying cases come before the Court and sometimes render the decisions apparently not harmonious, but I think that a case, absolutely binding on me, sums up in as clear a way as possible the true guiding principles on which the Court should work—that is, In re Coalport China Co., [1895] 2 Ch. 404—where it was held by the Court of Appeal that in the absence of any evidence that the directors had not acted bona fide, their refusal to register a transfer of shares could not be questioned. The rule sought to be imposed on the directors was that they were bound to preserve some kind of evidence that they had acted bona fide, so that the Court might see that they had so acted. The Court of Appeal said: “No, that is not part of their business; show us that they have not acted properly; give us some evidence of that kind,” and, in the absence of evidence, it must be presumed that they have done right. Whether that case be or be not distinguishable from or inconsistent with Moffat v. Farquhar (7 Ch. D. 591), it is hardly necessary to say. The one is a decision of the Court of Appeal in England, the other is a decision of a primary tribunal—a judge of the Chancery Division. But in that case Malins, V.-C. says: “The question therefore raised, and the only question I have to decide is, what is the power of the directors in vetoing or forbidding the transfer of the shares; now that entirely depends upon the 82nd clause of the deed of settlement of the Company;” so that when he says that the directors had no right of objection to the transfer of shares, except as regards the personal qualification of the transferee, he is referring to the 82nd clause of the deed of settlement of a particular company, and in construing provisions of articles of association the first general proposition is that you must look for the power of the directors to the very words of the articles of association. *122 The 82nd clause provides as follows [his Lordship referred to the article] and Malins, V.-C., savs: “There is, in my opinion, no other power of objecting to the transfer, and if, therefore, a proper transferee is proposed I take it to be perfectly clear that the proprietor has a right to transfer his shares to whomsoever he likes, and the board has no right to inquire into what the object of that transfer is.” And at.p. 607 he says: “My opinion is that they (the directors) have no right whatever to inquire as to the object of the transfer, provided the transferees are persons who are unobjectionable, as they are admitted here to be.” In this case Mr. Spicer says; you must accept me as a transferee of the shares. It is answered by the directors in this way: “You may be as unobjectionable as you like, still we have a right to consider whether we will admit you or not.” The case before Malins, V.-C., has no application here at all. Here there is no restriction and no limit on the powers of directors. “The directors, on behalf of the company, may decline to register any transfer of shares . . . unless the transferee is approved by the board.” There is no similar language in either of the cases to which I have referred. There is no similar wording in Penney’s Case, 8 Ch. App. 446. This case would not have lasted ten minutes but for the point made by Serjeant O’Connor, that Mr. Spicer’s name already appears on the register of shareholders, and that being so it is said that it may be shown that the directors were acting with an improper motive, or capriciously, in refusing to register him as transferee. In reference to that, Sir W. M. James, L.J., says ( Penney’s Case, at p. 449): “No doubt the directors are in a fiduciary position, both towards the company and towards every shareholder in it. It is very easy to conceive cases . . . in which the Court would interfere with any violation of the fiduciary duty as reposed in the directors. But, in order to interfere upon that ground, it must be made out that the directors have been acting from some improper motive, or arbitrarily and capriciously. That must be alleged and proved, and the person who has a right to allege and prove it is the shareholder who seeks to be removed from the list of shareholders and to substitute another person for himself.” The shareholder who requires registration must allege and prove some indirect motive. The fact that he has been registered before does not prove that fact. The onus lies on the applicant. It was suggested by Mr. O’Brien that a great deal might have happened between the registration of Mr. Spicer as an original shareholder and the presentation of his transfer of the second lot of shares—that a great deal might have happened in a couple of months. In Moffatt v. Farquhar the directors refused to approve the transfer, not from any personal objection, but on the ground that the transfer was colourable and was intended to increase the votes of the transferor, and it was held that the directors had no power to refuse the transfer except upon personal objection to the transferee. They were therefore ordered to approve of the transfer. Serjeant O’Connor and Mr. M’Gonigal suggest that the narrow margin of two months unexplained and unaccounted for must mean that the directors were not acting bona fide in the interests of the company, but for obscure personal reasons. I hate mystery, but I think the law is wise in refusing to compel directors to disclose their reasons for accepting or declining a transfer. The law allows the directors to hold their tongues. It allows them to say that everything was done honestly and bona fide in the interests of the company. In my view I have no power to make them do or say more. It is my considered judgment that, under these articles, the directors were not functi officio quoad Mr. Spicer when they registered him as a shareholder. It would be fatal if, after allowing a name to be registered once, he could obtain any number of shares afterwards: or that, if once admitted he must be always afterwards admitted. The case is an interesting one, but I think the directors cannot be ordered to put Mr. Spicer’s name on the register. Costs must follow the result.
In the Matter of the Dublin North City Milling Co. Ltd.
and In the Matter of the Companies Acts, 1862 to 1907.
High Court of Justice.
Chancery Division.
3 February 1909
[1909] 43 I.L.T.R 121
Meredith M.R.
Meredith, M.R.
This case is a difficult one, and my decision may have effect upon many shares in other companies far in excess of the amount involved in the present case. The question ultimately narrows itself to this point: Does the fact that Serjeant O’Connor’s client, Spicer, being already a member of the shareholders of the Dublin North City Milling Co., entitle him to call on the company to give their reasons for refusing to transfer to him additional shares into his name, or does it not so entitle him? The general rule applicable to cases of this description is clear. Varying cases come before the Court and sometimes render the decisions apparently not harmonious, but I think that a case, absolutely binding on me, sums up in as clear a way as possible the true guiding principles on which the Court should work—that is, In re Coalport China Co., [1895] 2 Ch. 404—where it was held by the Court of Appeal that in the absence of any evidence that the directors had not acted bona fide, their refusal to register a transfer of shares could not be questioned. The rule sought to be imposed on the directors was that they were bound to preserve some kind of evidence that they had acted bona fide, so that the Court might see that they had so acted. The Court of Appeal said: “No, that is not part of their business; show us that they have not acted properly; give us some evidence of that kind,” and, in the absence of evidence, it must be presumed that they have done right. Whether that case be or be not distinguishable from or inconsistent with Moffat v. Farquhar (7 Ch. D. 591), it is hardly necessary to say. The one is a decision of the Court of Appeal in England, the other is a decision of a primary tribunal—a judge of the Chancery Division. But in that case Malins, V.-C. says: “The question therefore raised, and the only question I have to decide is, what is the power of the directors in vetoing or forbidding the transfer of the shares; now that entirely depends upon the 82nd clause of the deed of settlement of the Company;” so that when he says that the directors had no right of objection to the transfer of shares, except as regards the personal qualification of the transferee, he is referring to the 82nd clause of the deed of settlement of a particular company, and in construing provisions of articles of association the first general proposition is that you must look for the power of the directors to the very words of the articles of association. *122 The 82nd clause provides as follows [his Lordship referred to the article] and Malins, V.-C., savs: “There is, in my opinion, no other power of objecting to the transfer, and if, therefore, a proper transferee is proposed I take it to be perfectly clear that the proprietor has a right to transfer his shares to whomsoever he likes, and the board has no right to inquire into what the object of that transfer is.” And at.p. 607 he says: “My opinion is that they (the directors) have no right whatever to inquire as to the object of the transfer, provided the transferees are persons who are unobjectionable, as they are admitted here to be.” In this case Mr. Spicer says; you must accept me as a transferee of the shares. It is answered by the directors in this way: “You may be as unobjectionable as you like, still we have a right to consider whether we will admit you or not.” The case before Malins, V.-C., has no application here at all. Here there is no restriction and no limit on the powers of directors. “The directors, on behalf of the company, may decline to register any transfer of shares . . . unless the transferee is approved by the board.” There is no similar language in either of the cases to which I have referred. There is no similar wording in Penney’s Case, 8 Ch. App. 446. This case would not have lasted ten minutes but for the point made by Serjeant O’Connor, that Mr. Spicer’s name already appears on the register of shareholders, and that being so it is said that it may be shown that the directors were acting with an improper motive, or capriciously, in refusing to register him as transferee. In reference to that, Sir W. M. James, L.J., says ( Penney’s Case, at p. 449): “No doubt the directors are in a fiduciary position, both towards the company and towards every shareholder in it. It is very easy to conceive cases . . . in which the Court would interfere with any violation of the fiduciary duty as reposed in the directors. But, in order to interfere upon that ground, it must be made out that the directors have been acting from some improper motive, or arbitrarily and capriciously. That must be alleged and proved, and the person who has a right to allege and prove it is the shareholder who seeks to be removed from the list of shareholders and to substitute another person for himself.” The shareholder who requires registration must allege and prove some indirect motive. The fact that he has been registered before does not prove that fact. The onus lies on the applicant. It was suggested by Mr. O’Brien that a great deal might have happened between the registration of Mr. Spicer as an original shareholder and the presentation of his transfer of the second lot of shares—that a great deal might have happened in a couple of months. In Moffatt v. Farquhar the directors refused to approve the transfer, not from any personal objection, but on the ground that the transfer was colourable and was intended to increase the votes of the transferor, and it was held that the directors had no power to refuse the transfer except upon personal objection to the transferee. They were therefore ordered to approve of the transfer. Serjeant O’Connor and Mr. M’Gonigal suggest that the narrow margin of two months unexplained and unaccounted for must mean that the directors were not acting bona fide in the interests of the company, but for obscure personal reasons. I hate mystery, but I think the law is wise in refusing to compel directors to disclose their reasons for accepting or declining a transfer. The law allows the directors to hold their tongues. It allows them to say that everything was done honestly and bona fide in the interests of the company. In my view I have no power to make them do or say more. It is my considered judgment that, under these articles, the directors were not functi officio quoad Mr. Spicer when they registered him as a shareholder. It would be fatal if, after allowing a name to be registered once, he could obtain any number of shares afterwards: or that, if once admitted he must be always afterwards admitted. The case is an interesting one, but I think the directors cannot be ordered to put Mr. Spicer’s name on the register. Costs must follow the result.
Tangney v. Clarence Hotels Co.
Johnston J.[1933] IR 59
JOHNSTON J. :
1. Feb.
The first matter that was discussed by counsel for the Company, namely, the point that the plaintiff, being merely the transferee of the shares, has no locus standi as such and no right to take proceedings against the Company to compel the Company to register him as the owner of the shares, is wholly unsustainable. The transferee of shares is the proper person to take such a step, and were it not that the transferor has been given a statutory right, notwithstanding the fact that by the transfer the shares have passed from him outright, to apply to the Company to enter the transferee’s name on the register, he would have no power whatsoever to do so. A transferee’s right and privileges in regard to this matter are perfectly plain when the nature of a public company registered under the Companies Acts is considered and when the provisions of these Acts as to shares, stock and the proprietary interest that a “member” of the company is entitled to, and the right of transfer, and the method by which that proprietary interest may be transferred, are taken into account; and I would be prepared to hold, even without the assistance of sects. 28 and 32 of the Companies (Consolidation) Act, 1908, that a transferee’s right was as I have stated it.
It is quite idle for the Company and the Directors to contend, as they both have done, that a person to whom a member of a company has transferred his stock or his share has no such privity with the company as would entitle him to go to the company with his deed of transfer and insist upon his being registered as the owner of the shares. Even were sects. 28 and 32 less clear than they are, the whole course of the existing statutory law would point to that conclusion. As a matter of fact, however, the matter has been set at rest by Skinner’s Case (6)a case to which I was not referred during the course of the argument. In that case a claim had been brought against,a company by a transferor of shares for damages for delay on the part of the company in registering the transfer. It was held by the Court of Appeal (Brett M.R. and Baggalley and Brown L.JJ.) that it was primarily the duty of the transferee to have procured the registration; and, as the consideration appearing on the face of the deed was merely a nominal sum, the plaintiff could, under the particular circumstances, recover only nominal damages from the company. Brett, M.R., at p. 887, says: “So that when the transfer has been executed and handed over to the transferee, it is then for the latter to pay the consideration money and to get the transfer registered. Now, is there any difference made in respect of this by sect. 26 of the Companies Act, 1867? I think not. It was not, I think, intended by the Legislature that that enactment should alter or have any effect on the duty of the transferee, and that it is still his duty, as it was before that enactment, to get himself registered a member of the company in respect of the shares which have been transferred to him, and that this sect. 26 of the Companies Act, 1867, was only for the protection of the transferor in case the transferee failed to perform his duty.”
There must therefore be a declaration in favour of the plaintiff that this action is properly constituted and that the plaintiff as transferee of the shares referred to in the statement of claim is entitled to have brought the action to have the respective rights of the parties determined.
The second question that has been raised is that, on the true construction of Article 21 of the Articles of Association, it was, and is, a condition precedent that before any member of the Company can transfer his shares to another person he must serve a notice upon the Company of his intention to do so, giving the name and address of the proposed transferee, and that no valid transfer can take place unless and until that notice has been served. Article 21 is in the following terms:
“Any member proposing to transfer any share shall give notice in writing of his intention so to do to the Directors, giving the name and address of the proposed transferee; and if the Directors are of opinion that the proposed transferee is not a desirable person to admit to membership, they may decline to register the transfer of any such share, and it shall be lawful for them, within three months from the receipt of such notice, to transfer any such share to such person as the Directors shall nominate, at such price as the person giving notice and the nominee of the Directors may agree upon; and in default of agreement
[1933]
1 I.R. Tangney v. Clarence Hotels Co.
Johnston J. 61
at such price as the Directors may determine, and the Directors may cause the name of their nominee to be entered in the Register in respect of the share transferred by them, and the receipt of the Company shall be a full discharge to the nominee of the Directors, and after his name has been entered in the Register the validity of the transaction shall not be questioned by any person. The proceeds of any share transferred by the Directors under this Article shall be applied in or towards satisfaction of the debts, liabilities, or engagements (if any) to the Company of the member whose share is transferred, and the residue (if any) paid to such member, his executors, administrators, or assigns.”
The admitted facts with reference to this matter are these:The plaintiff, who was at the time and is still a shareholder and therefore a member of the Company, got a transfer of the shares in question from the Hibernian Bank, who are the transferors, and sent them on October 23rd, 1931, to the Company for registration. The transfer deed and the accompanying documents were on October 26th returned to the plaintiff with a letter intimating that in accordance with Article 21 the Hibernian Bank was bound to give notice in writing to the Company of the name of the transferee. Ultimately the Company was, on November 2nd, 1931, duly served with a notice executed on behalf of the bank stating that the bank proposed to transfer the shares to the plaintiff. On December 9th, 1931, the bank received a resolution from the Company stating that “the Directors are of opinion that the proposed transferee, Mr. Denis Tangney . . . is not a desirable person to admit to membership and they decline to register the transfer of the [shares in question] from the Hibernian Bank, Ltd., to Denis Tangney.” A further resolution was passed nominating one, Mr. John Hanly, as the transferee of the shares in question at such a price as the bank and the nominee should agree upon and, in default of agreement, at such price as the Directors should determine.
It seems to me that Article 21 must be construed reasonably and not oppressively, and I do not think that it was intended by the framers of the same that service of such a notice was to be a condition precedent to the execution by the holder of shares of an agreement to transfer or even to the execution of an actual transfer deed. A transfer is not legally complete until the transferee has been registered in the books of the Company, and it was not incorrect for the Article to refer to a person to whom shares had been transferred by deed but who had not yet
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1 I.R. Tangney v. Clarence Hotels Co.
Johnston J. 62
been registered as “the proposed transferee.” The Directors are given the power, not “to decline to permit the execution by the proposed transferor of a deed of transfer,” but merely to “decline to register the transfer of any such share.” This point was made clear by Eve J., In re Copal Varnish Company, Ltd. (1), where the provision in question was this: “No share shall be transferred to any person who is not already a member of the company without the consent of the directors.”Even that clause was held not to amount to a condition precedent. Eve J. said: “So long as prior to the completion of the transaction an opportunity is given to the directors sitting as a board to determine whether the proposed transferee is a person whom they are prepared to admit as a member of the company, the conditions imposed by the Article are, in my opinion, complied with, and the contract into which the vendor on becoming a shareholder entered with his co-shareholders is sufficiently discharged.”In a somewhat analogous casenamely that of the preemption clause in sect. 1 of the Land Law (Ireland) Act 1881the Vice-Chancellor and Bewley J. arrived at a similar result in the cases of Fisher v. Coan (2) and Meathv. Megan (3). I am, therefore, prepared to give a declaration that on the construction of Article 21 service upon the Company of the notice referred to in that Article was not a condition precedent to the execution of a transfer of the shares by the Hibernian Bank to the plaintiff.
The third argument that has been addressed to me by the defendants, on the construction of this Article, is that the power given therein to the Directors is absolute and unrestricted, and is not confined to the case of a transfer of shares to persons who are not already shareholders and, as such, members of the Company. I am asked by the defendants to hold that the word “membership” should be read as meaning “membership in respect of the shares which are proposed to be transferred.” The plaintiff, on the other hand, says that the Article should be read as it stands, and that, read in that way, its meaning and intention are perfectly plain. Whenever a deed of transfer is submitted to the Directors they are empowered to decline to register the transfer; but their power to do so is not unlimited. It only arises whenever they are of the opinion that the proposed transferee is not a desirable person to admit to membership. It seems to me that that clause was intended to meet the case of a stranger proposing to come into the family, as it were. In such a case the Directors were given the power to determine whether such person was “a desirable person,” and their power to decide that question seems to be absolute and cannot be questioned, except by showing affirmatively that they are exercising their powers capriciously or wantonly: Ex parte Penney (1). As was pointed out by Eve J., in In re Bede Shipping Co., Ltd. (2), the right of an owner of shares to get rid of them by transfer is absolute except in so far as it is restricted by contract inter socios, and “it is to the Articles of Association that we must turn for the purpose of ascertaining the nature and the extent of the restrictions imposed.” The powers that have been conferred upon Directors in this respect vary widely in their extent and operation. One of the commonest forms of such restrictions, as Cozens Hardy M.R. pointed out in the same case (p. 132), was and is the power to restrict the transfer of shares except to persons who were already members of the company. That device has been adopted by company draftsmen in many different formsthat is, to place no restrictions upon the circulation of the shares amongst the members of the company, but to enable the heavy hand of the Directors to come down when a stranger seeks to enter into the charmed circle. This is the policy that is to be discerned in Articles 42 and 43 in the present case. Whenever the Directors with the sanction of the Company decide to increase the capital of the Company by the issue of new shares, all such new shares must, subject to any direction to the contrary that may be given by the general meeting of the Company that sanctions the increase of capital, “be offered to the members in proportion to the existing shares held by them”; and if new shares are issued in the future the plaintiff will be entitled to his proportion of them as a matter of course, and the Directors cannot refuse to let him have them on the ground that he is not”a desirable person.”
The case of In re Dublin North City Milling Company (3),which is relied upon by the defendants, is of no assistance in this case. The article in question there provided that the Directors “may decline to register any transfer of shares . . . unless the transferee is approved of by the board “; and it was held that the Directors could decline to register a transfer of shares to a person who was already a member of the company. This was not a decision upon
[1933]
1 I.R. Tangney v. Clarence Hotels Co.
Johnston J. 64
the construction of an Article of Association. It was an ordinary case where the Directors had an unrestricted power to decline to permit the registration of any transfer of shares. The transferee sought to get behind the power conferred by the Article by contending that because he was already a member of the company, the action of the board could not possibly be bonafide. The argument of the transferee’s counsel opened in this way: “The refusal of the directors to register the transfer is not bona fide”;and Meredith M.R. decided that he could not come to such a conclusion of fact upon the mere ground that the transferee was already a member of the company.
I cannot accede to the argument of the defendants that a shareholder is a member of the Company in regard to the particular shares that he holds. That is too narrow a view of the principles of the law as to the nature and constitution of a public company. The Act of 1862, under which this Company was constituted, provides (sect. 18) that upon the registration of the company, “the subscribers of the Memorandum of Association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate by the name contained in the Memorandum of Association, capable forthwith of exercising all the functions of an incorporated company.” Sect. 23 provides further that the subscribers “and every other person who has agreed to become a member of a company under this Act, and whose name is entered on the register of members, shall be deemed to be a member of the company.” These provisions are continued with small verbal differences, by sect. 16, sub-sect. 2, and sect. 24 of the Act of 1908. It seems to me, therefore, that the word “membership” in Article 21 can only mean membership of the corporate body of which the members in the aggregate consist.
I shall therefore declare that on the true construction of Article 21 the Directors had no power to refuse to register the transfer of the shares by the Hibernian Bank to the plaintiff, he being at the time a shareholder and a member of the Company.