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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Todd (Liquidator of Millen & Sommerville, Ltd) v. Millen and Others [1910] ScotLR 695 (16 June 1910) URL: http://www.bailii.org/scot/cases/ScotCS/1910/47SLR0695.html Cite as: [1910] SLR 695, [1910] ScotLR 695 |
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The prospectus of a company, signed by the vendors and issued to the public, stated that the vendors “have agreed to subscribe for the balance of £500 of the ordinary shares.” Held ( diss. Lord Salvesen) that the prospectus did not amount to proof of a concluded contract, binding on the company to allot, or the vendors to accept, the shares, and that the vendors, on a winding-up, were not liable, either on the ground of agreement or personal bar, to be placed on the list of contributories.
On 4th February 1910 Alfred A. Todd, C. A., Glasgow, liquidator of Millen & Sommerville, Limited, engineers and contractors, Glasgow, presented a note to the Court, under the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), and particularly sections 32 and 163 thereof, for authority, inter alia, ( b) to rectify the register of shareholders by placing thereon the names of certain persons who, as stated in the prospectus, “had agreed to subscribe” for shares.
The facts are given in the opinion ( infra) of the Lord Ordinary ( Cullen), who on 19th March 1910 refused the prayer of the note.
Opinion.—“By the note No. 12 of process the liquidator, inter alia, seeks to rectify the register of shareholders by placing thereon the names of Alexander Millen, Robert Galbraith Sommerville, and Alexander Melville, as trustees for their firm of James A. Millen & Sommerville, as holders of 480 ordinary shares of the company.
James A. Millen & Sommerville was the firm whose business the company was formed to and did acquire under an agreement dated 20th and 21st May 1907. The three persons above named were the partners of it. Neither they nor their said firm ever applied for the 480 ordinary shares in question. The liquidator does not allege a contract to take the shares otherwise than by tabling a prospectus, dated 22nd June 1907, issued by the company for the purpose of offering its preference shares to the public. A copy of this prospectus was, in accordance with
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the requirements of the Companies Acts, signed by the directors, who included the said Alexander Millen, Robert Galbraith Sommerville, and Alexander Melville. The prospectus contains the following passage:— ‘The price to be paid by the company for the said works, business, and other assets of James A. Millen & Sommerville is £10,000, of which £5000 represents the value of the goodwill of the business, and said price is to be satisfied by the allotment to the partners of said firm of 10,000 ordinary shares of the company, all fully paid in the following proportions, viz.—4500 shares to the said James Alexander Millen, 4500 shares to the said Robert Galbraith Sommerville, and 1000 shares to the said Alexander Melville. The price to be paid for the tenancy of the said lease of the ground at Cardonald with the buildings and others thereon is £2000, and is to be satisfied by the allotment to Archibald Russell, iron merchant, 41 King Street, Glasgow, one of the partners of the said Millen, Russell, & Co., of 2000 ordinary shares of the company, all fully paid. Messrs James A. Millen & Sommerville have agreed to subscribe for the balance of £500 of the ordinary shares, and the present issue of preference shares will be utilised to provide the necessary capital to equip the works and to provide additional working capital.’
The statement as to the 500 shares in the passage above quoted is founded on by the liquidator as proving a concluded mutual contract between the firm of James A. Millen & Sommerville and the company, whereby the former contracted to take, and the company contracted to give them, the 500 ordinary shares.
The respondents aver as follows:— ‘Neither the respondents nor their former firm of James A. Millen & Sommerville ever entered into any agreement with the company to subscribe for the balance of 500 ordinary shares of the company referred to in the said prospectus, nor did they ever apply or subscribe for these shares or any of them. The directors of the company neither when originally allotting the shares of the company nor at any other time subsequently called upon the respondents or their said firm to subscribe for the said 500 shares, and neither the respondents nor their said firm were under any obligation to do so. The statement in the said prospectus that the respondents' said firm had agreed to subscribe for the said 500 shares was erroneous, and no such agreement was ever concluded.’
The respondents founded on the case of in re Moore Brothers & Company, Ltd. (L.R. [1899], 1 Ch. 627), and a relative passage in Lindley on Companies (6th ed., vol. i., p. 22), to the effect that ‘a statement in the prospectus that certain persons will take certain shares in the company is not sufficient evidence of an agreement between them and the company so as to bind them to take such shares, even though the persons referred to are directors of the company and the prospectus is issued by them after the company has come into existence.’
In the case of in re Moore there were certain elements in the statement in the prospectus which made it too indefinite as a statement of contract, but the Court enunciated the broader view that a statement in a prospectus that some one, a party to the issue of the prospectus, has intimated an intention or a willingness to take shares does not sufficiently evidence a concluded agreement between that party and the company, binding both.
I am unable to distinguish this case from that of in re Moore. The words there used were ‘will take.’ The words here are ‘have agreed to subscribe for.’ In both cases the words used are unilateral in their significance. Counsel for the liquidator conceded that the prospectus, in order to support his case, must evidence a concluded mutual contract binding the respondents to take, and the company to give, the shares. I do not think that the prospectus evidences such a concluded contract, and I am accordingly of opinion that head ( b) of the prayer of the note falls to be refused.”
The liquidator reclaimed, and argued—The respondents were bound to take the shares, for they had signed the prospectus containing the statement in question, and that was sufficient evidence of a concluded contract between them and the company. They “had agreed” to become members, and that was sufficient—Companies (Consolidation) Act 1908 (8 Edw. VII, c. 69), sec. 24 (2). Moreover, having signed the prospectus they were barred from repudiating the ordinary inference from the words used. The case of Moore [1899], 1 Ch. 627, was distinguishable, for the words used there were a mere representation of a future intention. The present case was governed by that of Moore and De La Torre (1874), L.R. 18 Eq. 661.
Argued for respondents—The prospectus was a document prepared for the public, and could not create a binding agreement where, as here, there was no agreement in fact. “Have agreed to subscribe” meant “have offered to subscribe.” That being so, the prospectus was not evidence of a concluded contract to take the shares in question.
At advising—
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As a matter of fact none of those 500 ordinary shares were ever allotted to Millen & Sommerville, and twenty of them were issued to other parties. Matters stood in that position until the liquidation of the company, and the sole question at present is whether the liquidator of the company is entitled to put the partners of Millen & Sommerville, as trustees for the firm, on the list of contributories in respect of 480 shares.
I agree with the view taken by the Lord Ordinary. I think that this case is really practically the same as in re Moore Brothers & Company, Ltd. ( [1899] 1 Ch 627), and I agree with the decision in that case. The criterion must be whether in the prospectus you can find a concluded agreement which at the time would have been enforcible by either party against the other, because it is not said that there is any other agreement which can be proved except that which can be found in the prospectus. There is also, I think, no room for the doctrine of bar, because the question is really between the company, represented by the liquidator, and these partners. It is not a question raised by anyone who has taken preference shares upon the faith of the statement made in the prospectus. The matter therefore comes to be as narrow as this — is that sentence “Messrs James A. Millen & Sommerville have agreed to subscribe for the balance of 500 of the ordinary shares” a contract which could have been enforced either by Millen & Sommerville against the company or by the company against Millen & Sommerville? Now I do not think that it is, because the statement is unilateral in its expression, and it does not seem to me in any way to bind the company to accede to the proposition which Millen & Sommerville make in regard to subscribing for these shares. I think there is nothing more in the case than that, and I refer to the opinion of the English judges in the case of in re Moore which I have already cited. Upon the whole matter I am of opinion that the Lord Ordinary's opinion should be adhered to.
That a person should become a contributory he must (Act of 1908, section 123) be a member of the company. That a person should be a member of the company
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I assume that the company was registered prior to the issue of the prospectus, and that the prospectus was issued with a view to solicit applications for its preference shares. It sets forth the way in which the 12,500 £1 ordinary shares of the company were intended to be disposed of. 12,000 were to be allotted to the vendors as fully paid in satisfaction of the price of the business to be acquired, and then it is added, “Messrs James A. Millen & Sommerville have agreed to subscribe for the balance of 500 of the ordinary shares.”
This is certainly a representation for which the three partners of the firm of James A. Millen & Sommerville, who were all parties to the issue of the prospectus, are responsible. As was said by Lindley, M.R., in the case of Moore Brothers & Company, Limited, [1899] 1 Ch. at 634—“If we had to consider the effect of the prospectus with regard to a complaint made by a person who had taken shares in the company on the faith of these statements we might possibly come to a conclusion advantageous to the person. But we have not had to consider anything of that kind. We have to consider whether these statements in the prospectus amount to satisfactory proof not merely whether the document is admissible in proof, but whether it is satisfactory proof of an agreement” between the firm and the company that the firm should take and that the company should give them 500 £1 shares.
It must be admitted that the case is not so clear as that of Moore Brothers & Company, Limited, for there is no indefiniteness about the number of shares, and there is no question about the proportion in which they were to be subscribed for by individuals. But notwithstanding, I cannot find in this statement in the prospectus satisfactory proof of that mutual agreement to take and to give which is necessary under the statute to render the firm a member and therefore a contributory. The prospectus is not a constituent document of the company from which and subsequent actings of parties, as in Isaac's case ( [1892] 2 Ch 158) an agreement may be inferred.
At best the prospectus is a representation which the partners of Messrs James A. Millen & Sommerville may be barred from denying, that in name of their firm they will apply for and take when allotted 500 shares in the company, but that is far short of proof of a concluded agreement between their firm and the company which would de piano have entitled the firm to compel registration, or have warranted their being placed on the register by the act of the directors. If so, they cannot be made contributories.
If I could adopt the Lord Ordinary's construction I should have reached the same conclusion as he and your Lordships have done, but in my opinion the words already quoted are not mere evidence of an intention on the part of the firm of James A. Millen & Sommerville to take shares if the company of which the partners were directors desired them to do so. The prospectus was issued by the company, and was signed by each of the persons who were partners of the firm in question, and who were also directors of the company. It was therefore a joint statement by the company and the individual respondents that an agreement had been come to that they should subscribe for £500 of the ordinary shares. The object of the prospectus was to obtain preference capital, and I do not doubt it would be a security to the preference shareholders that all the ordinary share capital had been arranged to be taken up. I think it was plainly implied in the language used that the company had agreed to allot the £500 of the ordinary shares which the respondents had agreed to subscribe for. No person reading the prospectus and believing it to be an honest document could take any other meaning out of it, and I am quite satisfied the framers of the prospectus had this fully in view. It would never occur to an ordinary reader that it was left in the option of the directors to avail themselves or not as they chose of the obligation that the respondents were stated to have come under to subscribe for the shares; and that they could, whenever the preference capital had been secured, have simply declined to allot the shares at all. If that view were taken, it is obvious that no remedy would be open to the preference shareholders who had subscribed on the faith of the prospectus, for there would be no misrepresentation if the respondents had in fact come under an obligation to subscribe for the shares at the date when the prospectus was issued; although the directors, of whom they constituted one half, immediately thereafter resolved that they were not to be held to their obligation. The case appears to me in this respect to be distinguishable from in re Moore, for Vaughan-Williams, L. J., stated that it was not even suggested in the course of the argument that the prospectus in that case meant “that the company were bound to allot shares to the directors, and that the directors were bound to accept them.” There were, besides, as the Lord Ordinary has
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I do not think any difficulty is caused by the fact that twenty of these shares were allotted to persons other than the respondents, as they were directors of the company and must have known of the allotment of these shares, and they and the company must be held to have acquiesced in the agreement being modified to that extent. If the whole £500 had been alloted to third parties and fully paid up, no person would have had an interest to enforce the agreement; but to the extent to which they have not been allotted the liquidator has a duty to see that the assets are increased by the respondents being put upon the register as shareholders. It was not contended that if the prospectus be construed as I have held it must be there was any other ground on which the respondents could resist the liquidator's demand, and this being so, I am of opinion that the Lord Ordinary's interlocutor should be recalled, and that we ought to remit the petition to him with instructions to grant head ( b) of the prayer.
The Court adhered.
Counsel for Petitioner (Reclaimer)— Sandeman, K.C.— Hon. W. Watson. Agents — Watt & Williamson, S.S.C.
Counsel for Respondents — Macmillan— Gentles. Agents— Ronald & Ritchie, S.S.C.