Merchant Credit Pte Ltd v Industrial & Commercial Realty Company Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 January 1983 |
| Docket Number | Privy Council Appeal No 20 of |
| Date | 27 January 1983 |
| Court | Privy Council |
[1983] SGPC 3
Privy Council
Lord Fraser of Tullybelton
,
Lord Scarman
,
Lord Bridge of Harwich
,
Lord Brandon of Oakbrook
and
Lord Templeman
Privy Council Appeal No 20 of 1981
T L G Cullen QC and Mrs Helen Yeo Cheng Hoong (Douglas Goldberg & Co) for the appellant
William Stubbs QC and Leslie G Kosmin (Norton, Rose Botterell & Roch) for the respondent.
Cheshire Banking Company, In re; Duff's Executors' Case (1886) 32 Ch D 301 (refd)
Florence Land and Public Works Company, In re;Nicol's case (1885) 29 Ch D 421 (distd)
Companies–Shares–Allotment–Increase in share capital of company–Contract for purchase of new shares–Moneys paid for issue of new shares–Whether company and/or shareholders had right to rescind contract and refund moneys–Whether refund would involve illegal reduction of capital–Companies–Shares–Allotment–Increase in share capital of company to fund project–Moneys paid by shareholder to company–Subsequent failure of project–Whether respondent entitled to demand return of moneys–Whether moneys paid as loan or as payment for shares
The appellant company had been incorporated pursuant to a shareholders' agreement made between ICB, ALI and S. Subsequent to incorporation, the authorised share capital of the appellant was increased to fund a project.
In respect of this increase, ICB agreed to subscribe to 332,500 shares and caused its respondent subsidiary to pay for its shares. The sum of $332,500 (“the application moneys”) was then paid into the appellant's bank account as was agreed by the parties.
However, the appellant subsequently decided to defer the issue of the shares until the project proved to be a going concern. Work on the project started but it was eventually abandoned as planning permission could not be obtained.
The respondent commenced suit, and demanded the repayment of $332,500 and interest.
The question raised in this appeal was whether the respondent was entitled and bound to be registered as the holder of 332,500 fully paid shares of $1.00 in the appellant, or whether the respondent was an unsecured creditor of the appellant in the sum of $332,500.
The High Court rejected the respondent's claim for the payment of the application moneys and interest. It granted the appellant a declaration that the respondent was a shareholder holding 332,500 shares.
This was reversed on appeal by the Court of Appeal, who held that the appellant had treated the application moneys as a loan and was thus obliged to make repayment.
The appellant appealed.
Held, allowing the appeal:
(1) The sole question on the evidence was whether the appellant had agreed that the respondent would be entitled to repayment of the application moneys if and when the project did not prove to be a going concern. No such agreement had been proved: at [16].
(2) The respondent had failed to establish that its application for shares in the appellant was subject to any contractual condition before or after the date of its application: at [17].
(3) There was a binding contract between the parties and all that remained was fulfilment of the obligation, later deferred by agreement, for the shares to be issued and registered: at [19].
(4) The evidence did not support the respondent's claim that the contract was a loan convertible into shares if the project proved to be a going concern, or that the contract for shares was conditional upon the project proving to be a going concern, such that the application moneys were returnable by the appellant as money had and received upon failure of the project: at [21].
(5) There was also no evidence that the contract for shares had been rescinded: at [22].
(6) In any event, the appellant had no power to rescind the contract for shares and return the application moneys as moneys borrowed or as moneys had and received because an illegal reduction of capital would thereby be involved: at [23].
(7) While circumstances could arise in which a company and/or an applicant of shares could become entitled to rescind a relevant contract, the appellant was neither able nor willing to do so in the present case. Having agreed to the deferment, the respondent was only entitled to put an end to that deferment. The respondent was not entitled to claim the return of the application moneys: at [25].
Judgment reserved.
Lord Templeman(delivering the judgment of the Board):
1 The question raised by this appeal is whether the respondent Industrial & Commercial Realty Company Limited is entitled and bound to be registered as the holder of 332,500 fully paid shares of $1.00 in the appellant Merchant Credit Private Limited or whether, as the respondent claims, it is instead an unsecured creditor of the appellantor [appellant] company in the sum of $332,500.
2 The appellant (“Merchant Credit”) was incorporated pursuant to a shareholders' agreement dated 28 March 1972 and made between the Industrial & Commercial Bank Limited (“ICB”), Arthur Lipper International Limited (“ALI”) and a Mr Sinclair. Clause 2 provided that all the issued share capital of Merchant Credit should be subscribed for in the proportions of 47.5% by ICB, 47.5% by ALI and 5% by Mr Sinclair. By cl 3 ICB and ALI agreed, upon the request of the Board of Directors of Merchant Credit, to advance to Merchant Credit by way of loan in equal shares all moneys required from time to time by Merchant Credit for its operating expenses. The primary objects of Merchant Credit were intended to be the carrying on of the business of merchant banking, underwriters, financiers and ancillary purposes but the memorandum of association of Merchant Credit enabled the Company to indulge in the purchase and development of land and to engage in any trade or speculative venture.
3 Merchant Credit was incorporated in Singapore and by April 1973 had an authorised share capital of 1,000,000...
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Farouq Bin Abdul Aziz alias Farouk Abdol Aziz Hamzah v Lim Tien T'ser Arthur Douglas and Another
...that it involved an illegal reduction of capital. More pertinently, in Merchant Credit Pte Ltd v. Industrial & Commercial Realty Co Ltd [1983] 1 MLJ 124 the Privy Council held an illegal reduction of capital would arise if a company, without the leave of court, converts or agrees to convert......