Lawrence v West Somerset Mineral Railway Company
| Jurisdiction | England & Wales |
| Date | 1918 |
| Year | 1918 |
| Court | Chancery Division |
Railway Company - Debenture Stock Holders - Interest not in arrear - No enforceable Charge - Railway not a Going Concern - Interest on Stock and Dividends on Shares paid out of Annuity from another Company - Capital or Surplus Revenue - Action to restrain Payment of Dividends to Shareholders - Protection of Security -
Under a statutory agreement made in 1868 the E. V. Company was to have the use of a railway belonging to the defendant company, and to pay in respect of such user, inter alia, a yearly sum of 5575l. for a contemplated term of years expiring in September, 1919, in respect of dividends and interest in the defendant company's share and loan capital. By a supplementary agreement made in 1898 the E. V. Company was relieved of its obligation under the earlier agreement to work the railway, but in other respects that agreement was confirmed. From that date no traffic was carried on the railway, which was in effect abandoned, and it was doubtful whether there would be sufficient assets in 1919 to provide in full for the loan capital. The 5575l. had been paid by the E. V. Company year by year to the defendant company and applied in paying interest on the loan capital, the expenses of management, and dividends on the preference and ordinary share capital. No interest was in arrear on the debenture stock. The plaintiff, suing on behalf of himself and all other the holders of debenture stock of the defendant company, claimed a declaration that the further payments to be received in respect of the 5575l. should be treated as capital and not as profits available for payment of dividends to shareholders:—
Held, that the defendant company was not bound to retain this annual surplus until the equilibrium between the value of the undertaking and the capital sunk in its construction had been restored, and that the distribution of the annual surplus was not illegal as being a payment of dividends out of capital.
Held, further, that the plaintiff was not entitled to protect his security by bringing an action of this character, inasmuch as he had no enforceable charge, and was not a creditor, but an annuitant whose annuity was not in arrear.
ACTION WITH WITNESSES.
On February 18, 1918, the plaintiff, James Edward Garnons Lawrence, suing on behalf of himself and all other the holders of debenture stock of the defendant company, gave notice of motion in an action for an order that the defendant company might be restrained until judgment or further order from treating certain half-yearly sums payable to the defendant company by the Ebbw Vale Steel, Iron, and Coal Company during the years 1918 and 1919, under certain agreements, as profits available for distribution as dividends among the shareholders of the defendant company, and from paying out of the said sums any such dividends accordingly. There were no pleadings, the motion being treated as the trial of the action. The facts are taken verbatim from the judgment of the Court.
“The defendant company was incorporated by an Act passed on July 16, 1855, for the purpose of making and maintaining a railway from Watchet Harbour to Brendon Hills, in the county of Somerset, with the primary object of transporting to the harbour for shipment to South Wales the iron ore then lately found at Brendon. By virtue of an Act passed in 1869 the company's capital is 105,000l., consisting of 30,000l. loan capital, represented by debenture stock bearing interest at 5 per cent., and 75,000l. in shares. By the last-mentioned Act an agreement then recently entered into between the company and the Ebbw Vale Steel, Iron, and Coal Company, Limited, whereby a lease of the undertaking to the Ebbw Vale Company for the term of fifty-one and a half years from March 25, 1868, was contemplated, was confirmed and made binding on the parties thereto. By the said agreement the Ebbw Vale Company was during the term to act as common carriers of all traffic on the railway; the undertaking was to be kept in good repair and proper working order and condition, to the reasonable satisfaction of the Ebbw Vale Company, by the railway company; and the railway company was also to provide and employ all such officers and servants on the railway as were proper and sufficient for the purpose of the traffic, and to pay all taxes, rates, assessments, and other outgoings in respect thereof. Under articles 10 and 12 the Ebbw Vale Company was to pay to the railway company in respect of the user by them of the railway (1.) the maximum tolls which the railway company might from time to time demand and take from the Ebbw Vale Company for the user thereof, and in addition such a sum as with the said tolls should in every year amount to 5575l. in respect of dividends and interest on the railway company's authorized share and loan capital; (2.) the amount of the expenditure of the railway company under the earlier clauses of the agreement already referred to...
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BTI 2014 LLC v Sequana S.A.
...cause of action to restrain a lawful payment by way of distribution: see Lee v Neuchatel Asphalte Co (1889) 41 Ch D 1 and Lawrence v West Somerset Mineral Railway Co [1918] 2 Ch 250. But those were not cases about a creditor duty owed by directors to the company, and it is no part of the a......