The Bombay Burmah Trading Corporation, Limited vs Smith

Macnaghten, J. 1. This appeal raises a question as to the meaning and effect of a provision contained in an agreement of purchase and sale which was marie between the Appellants and the late Mr. William Wallace in 1864. The question relates to the continuance of a special or extra dividend attached to certain shares, part of the consideration for the purchase. 2. Mr. Wallace was the possessor of an extensive and valuable business as a timber merchant in Burmah. In 1863, under the Limited Liability Act then in force in Bombay (Act XIX. of 1857), a joint stock company, which is now called the Bombay Burmah Trading Corporation, Limited, was formed for the purpose of taking over Mr. Wallace''s business. 3. The company was registered with a nominal capital of 25 lacs, divided into 1000 shares of Rs. 2500 each. 4. The company''s articles of association, printed in the Record, contain two regulations which it will be convenient to notice in passing. Article 9 gives the company a lien on all the shares of every shareholder for all the debts, liabilities, and engagements of such shareholder. Article 29 provides, in common form, that the executors and administrators of a deceased shareholder shall bo the only persons recognised by the company as having any title to his shares, but it requires, as a condition precedent to recognition, the production of probate or letters of administration granted by the High Court of Bombay. It was suggested, in the course of the argument before this Board, that Article 9 was not in existence when the purchase agreement was made. That objection comes rather late; in the Courts below the case was argued on the footing that the articles printed in the Record were the relevant articles of the company. Nor, indeed, is the objection one of substance. It was part of the arrangement expressed in the agreement itself that the company should alter or modify their existing articles as they might be advised for the purpose of carrying out the agreement. It matters little whether the article in question was introduced for the very purpose of the agreement, or contained in the articles of association as originally framed. 5. The terms and conditions of the transfer of the business to the company are to be found in an agreement dated the 22nd of July, 1864, which was ratified and adopted by the company in general meeting and carried into effect. The agreement is expressed to be made by Mr. Wallace of the first part, and five gentlemen, directors of the company, of the second part. Mr. Wallace, it seems, had concessions from the British Government; he had concessions from the King of Burmah; he had forest rights, saw-mills, a large establishment and staff of workmen, ships under charter, and a number of pending contracts. The agreement was made on the faith of certain representations by Mr. Wallace as to the value of his business, and the nature and circumstances of the property which he proposed to hand over. After setting out these representations somewhat in detail, the agreement proceeds as follows: "And whereas the said parties hereto of the second part have made such enquiries as were in their power with regard to the said representations and so far as such enquiries extended the said representations appeared to be correct but as to many of the matters about which the said representations were concerned the said parties hereto of the second part have been obliged to rely on such representations alone it being of great consequence for the interests as well of the said company as of the said William Wallace that some binding arrangement should be made with the least possible delay And whereas it was considered by the said parties hereto that having regard to the great difficulty of estimating the value of the said forest operations rights and grants of the said William Wallace and of the said trained establishment and goodwill the interests as well of the company as of the said William Wallace would be best consulted by entering into the arrangement hereinafter in Clause 13 contained." Then Clause 12 provided that in consideration of the transfer of certain property, referred to as "the fixed assets," Mr. Wallace should be entitled to have allotted to him 100 shares in the company of Rs. 2500 each, but at the same time it declared that the company should not be bound to give their consent to or recognise as valid any assignment of the said 100 shares, or any of them, during a period of five years from the date of the registration of the company. 6. Clause 13, so far as material, is in these terms: "In consideration of the transfer by the said William Wallace to the company of the premises hereby agreed to be transferred (other than the said fixed assets and other than the premises mentioned in the clauses six seven and nine) "-those premises consisted of timber already cut, live stock, stores, and plant-" the said William Wallace his executors or administrators shall be entitled so long as he or they shall hold the said one hundred shares to an extra or preferential dividend equal to one-third of such surplus net profits of the company as may remain in any year after paying a dividend at the rate of twelve per cent, per annum on the paid up amount of all shares in the company (including the said one hundred shares) and after setting apart from time to time out of such surplus profits as a reserved fund or to the credit of any reserved fund already created such sum as the directors of the company for the time being may in their discretion think fit." 7. That is a provision, not unintelligible and not unreasonable, by which, as the agreement states on the face of it, the interests of the purchasers as well as the interests of Mr. Wallace were intended to be consulted. Mr. Wallace was to receive payment for the goodwill of his business out of future profits, and in proportion to the amount of those profits. He would be paid handsomely if his representations proved correct. If they turned out to be incorrect it would be an advantage to the company to keep Mr. Wallace''s name on the register, and to keep within their reach the shares which represented the purchase-money. It must have been obvious to both parties to the agreement that it was not unlikely to lead to difficulties and complications which might last for an indefinite time. It was therefore of importance to the company to have Mr. Wallace as a member, and to keep their hold on Mr. Wallace''s shares for as long a time as possible. They were not bound to allow a transfer of his shares for five years; after that period they trusted, it seems, to the influence and operation of the inducement held out in the shape of an extra dividend, leaving the duration of the arrangement to depend on the course of events. 8. Mr. Wallace is now dead. He died on the 28th of June, 1888. He left a will naming executors, two of whom survived him. His will has been proved in England by one of the executors. As the attorney of that executor, Mr. Smith, the Plaintiff and Respondent in this case, has obtained a grant of letters of administration, with the will annexed, from the High Court at Bombay. The letters of administration have been produced to the company, and they have recognised the title of the administrator by noting the letters of administration in the share register. The shares still stand in the name of Mr. Wallace; but it is not disputed, if it was not actually admitted, that all the testator''s debts have been paid or satisfied. 9. The only question, if there be a question, is whether in these circumstances the extra dividend still continues to be payable. The Appellants contend that the extra dividend is not payable now because there is nobody who can be said to hold Mr. Wallace''s shares. Mr. Wallace, they say, does not hold them, because he is dead; his executors do not hold them, because their names are not on the register. But then who does hold them? Certainly, no one else. And why are the shares not held by Mr. Wallace or his executors or administrators? There is no magic in the word "hold." Mr. Wallace''s name is on the register. The company cannot remove it. As long as it is there the company are bound to credit the proper dividends to his holding, and to recognise the title of his legal personal representatives to receive any dividends which may be carried to his credit. 10. It was urged on behalf of the company that Mr. Wallace''s estate ought to be wound up and distributed, and that some person ought to be put on the register in his own right; and they complain that if the Respondent''s contention is correct this extra dividend may go on for ever. The contention of the company is a singular one, and the complaint they make is no less singular. They complain that the attraction which they themselves held out is attractive still--only too attractive. They think it a hardship that the arrangement should continue when once it has served their purpose. But it must be remembered that the scheme had a twofold object. It was designed for the protection of the company; it was also intended as a mode of payment for the goodwill. Why is the payment for goodwill to stop because Mr. Wallace''s representations have proved correct, and the provision is no longer needed for the protection of the company? 11. But, say the company, if the executors would only do their duty to their beneficiaries under the will, or if the beneficiaries would kindly insist on their rights, the arrangement would come to an end, because the estate would be distributed, and the shares would be appropriated to persons beneficially entitled. What have the Appellants to do with that? Naturally the beneficiaries are content with things as they are. How can the company avail themselves of any equities which the beneficiaries may have as between themselves and their trustees? The company are only concerned with the legal title to the shares; the legal title is that of Mr. Wallace, deceased; and his legal personal representatives are entitled to whatever may be payable in respect of his shares. 12. Their Lordships think that according to the true meaning of Clause 13, and the very letter of its terms, the shares in question are held by Mr. Wallace, or his executors or administrators. They will, therefore, humbly advise Her Majesty that this appeal should be dismissed. 13. The Appellants will pay the costs of the appeal.