Lyle & Scott Ltd v Scott's Trustees
| Jurisdiction | Scotland |
| Date | 1958 |
| Docket Number | No. 20. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Lord Strachan.
CompanySharesTransfer of sharesPrivate companyArticles of association imposing restrictions on "transfer" of sharesArticle requiring intimation to company by shareholder "desirous of transferring" shares and conferring rights of pre-emption on other shareholdersAgreement between shareholder and third party for sale of shares without registration of transferWhether agreement a contravention of articleWhether company entitled to enforce pre-emption provisions.
The articles of association of a private company included an article (No. 9) which provided, inter alia:"No registered holder of more than one per centum of the issued ordinary share capital of the company shall, without the consent of the directors, be entitled to transfer any ordinary share for a nominal consideration or by way of security and no transfer of ordinary shares by such a shareholder shall take place for an onerous consideration so long as any other ordinary shareholder is willing to purchase the same at a price which shall be ascertained by agreement between the intending transferor and the directors and, failing agreement, at a price to be fixed by the auditor of the company for the time being. Any such ordinary shareholder who is desirous of transferring his ordinary shares shall inform the secretary in writing of the number of ordinary shares which he desires to transfer, and the price shall immediately be fixed as aforesaid."
A number of shareholders in the company, who each held more than 1 per cent of the ordinary shares, entered into agreements with a third party whereby they received payment of 3 for each1 share which they held and bound themselves, inter alia, to vote as the third party desired, in order to put him as fully in control of the company as they could without registering transfers of the shares. The company brought actions against these shareholders for declarator that they were bound to implement the terms of article 9 and for implement thereof.
Held (1) (Lord Sorn reserving his opinion on this point) that the agreements in question were in contravention of the articles of association of the company, but (2) that article 9 was not enforceable by the company against the shareholders, as they had a right to withdraw any notice which they might be required to give; and the actions dismissed as irrelevant.
Smith v. WilsonUNK, (1901) 9 S. L. T. 137,followed.
Lyle & Scott Limited, a private company incorporated under the Companies Acts, brought actions of declarator and specific implement against thirteen of its shareholders, including (1) Mrs Norah A. Scott and others (John P. Scott's trustees) and (2) the British Investment Trust Limited, whose cases were selected, by agreement of parties, as representing the two groups into which the whole of the defenders ultimately came to be divided (as explained in the third paragraph of the Lord President's opinion).
The following summary of the conclusions and averments is taken from the opinion of Lord Strachan:"The pursuers are a company limited by shares and they sue certain of their ordinary shareholders in order to compel these shareholders to implement the terms of article 9 of the company's articles of association, which contains restrictions on the transfer of ordinary shares. In each of the thirteen actions the pursuers aver that the defenders are desirous of transferring their ordinary shares and each summons contains four conclusions, namely, (1) for declarator that the defenders are bound to implement the terms of article 9 by informing the secretary of the company in writing of the number of Ordinary shares which they desire to transfer, (2) for decree ordaining the defenders to do so, (3) for interdict against the defenders voting at an extraordinary general meeting of the company which was held on 22nd February 1957 and at every adjournment thereof, and (4) for interim interdict.
"On 9th February 1957 I granted interim interdict under the third and fourth conclusions, and on appeal the First Division adhered to my interlocutor. All parties are agreed that the third and fourth conclusions are now spent. The Debate Roll discussion was confined to questions arising under conclusions 1 and 2. The defenders moved that I should dismiss those conclusions in toto on the ground that the pursuers' averments in support of them are irrelevant. On the other hand the pursuers moved for decree de plano, or alternatively for proof before answer.
"Article 9 of the articles of association provides, inter alia, as follows:9. Subject to the provisions of clauses 7, 8 and 12 no registered holder of more than one per centum of the issued ordinary share capital of the company shall, without the consent of the directors, be entitled to transfer any ordinary share for a nominal consideration or by way of security, and no transfer of ordinary shares by such a shareholder shall take place for an onerous consideration so long as any other ordinary shareholder is willing to purchase the same at a price which shall be ascertained by agreement between the intending transferor and the directors and, failing agreement, at a price to be fixed by the auditor of the company for the time being. Any such ordinary shareholder who is desirous of transferring his ordinary shares shall inform the secretary in writing of the number of ordinary shares which he desires to transfer, and the price shall immediately be fixed as aforesaid. Thereafter the secretary shall intimate the same to all the other holders of ordinary shares simultaneously by written notice containing particulars of the intending transfer. Thereafter each ordinary shareholder receiving such notice shall be entitled, within fourteen days from the date of the notice, to intimate in writing to the secretary that he offers to purchase some or all of the shares mentioned in the intimation made to him; otherwise he shall not be a party to the offer. On the expiry of the aforesaid fourteen days' notice, the secretary shall report the result to the directors who shall divide and appropriate the shares specified in the notice among the offerers in proportion to the number of ordinary shares held by them respectively or as near thereto as possible, provided that no offerer shall have apportioned to him a greater number of shares than he has offered to purchase
"All the defenders are holders of more than one per cent of the ordinary share capital, and they appear on the register of members of the company as such. They have admittedly entered into contracts in regard to their ordinary shares, and they have not complied with the terms of article 9. Those contracts were entered into between the defenders and a person whose identity has not been disclosed. The pleadings show that the parties are not agreed as to the exact terms of the contracts, and it is important to note the main averments which have been made in that connexion by the pursuers on the one hand and the defenders on the other.
"In condescendence 2 the pursuers set forth the terms of an offer which they say was sent to all the defenders by the agents acting for the undisclosed offerer on 6th November 1956. That, ex facie,was an offer to purchase the defenders' share holding in the company, including their holdings of ordinary shares, on the terms and conditions therein stated. The conditions provided, inter alia, that the price for each ordinary share was to be 2, 10s. and that the price was to be satisfied by payment in cash on or after 18th December 1956 against delivery of valid and effective transfers of the shares together with the share certificates and general proxy in favour of the offerer. It is further averred that on 22nd November 1956 the price offered for ordinary shares was increased to 3 and the time for receipt of acceptances and proxies was extended until 24th December 1956. The pursuers aver that the defenders have accepted the said offer, that they have received payment for their ordinary shares and in exchange have delivered the share certificates and proxies, and that they have executed and delivered transfers, declarations of trust, or other documents of transfer under their contracts. The pursuers also aver that the defenders desire to transfer their ordinary shares to the principal on whose behalf the said offer was made.
"While the defenders, on the other hand, admit that they have entered into a contract in regard to their ordinary shares, they have not seen fit to state in full what that contract is, and they evidently differ from the pursuers on some material points. They admit that they have received a sum of 3 for each share and they refer to that sum as the price received for their ordinary shares. It is, however, specifically denied by them that any document of transfer has been either executed or delivered, and they make the following averments in regard to their alleged desire to transfer the shares:It is further averred that the defenders are not only not desirous of transferring their preference or ordinary shares, but are desirous that no instruments of transfer shall be executed or delivered by them at the present time. Explained the price of their shares was paid on or about 20th December 1956 on condition that no transfer deed was delivered at that time. The defenders accepted payment on said condition.
"When I granted interim interdict under the third and fourth conclusions, I had, of necessity, to have regard mainly to what was alleged by the pursuers. It is now clear upon the pleadings that the parties are at issue on some important questions of fact and in particular as to (1) whether the defenders have already executed or delivered documents of transfer, and (2) whether the defenders are desirous of transferring their shares."
The defenders in each of the cases pleaded, inter alia:"(1) The pursuers' averments being...
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Lyle & Scott Ltd v Scott's Trustees
...contract of sale and accepted the purchase money, they were bound to implement article 9. (In the Court of Session 14th February 1958—1958 S. C. 230.) The appellants in both appeals were Lyle & Scott, Limited, a limited company, and the respondents in the first appeal were Mrs Norah A. Scot......