SUPREME COURT Refusal To Register Transfer Of Shares

Press, Volume XCV, Issue 28234, 23 March 1957, Page 2

SUPREME COURT Refusal To Register Transfer Of Shares

The refusal of the directors of Dominion Builders Supplies (Christchurch), Ltd. to register the transfer of shares bought by Maurice Rhodes Carter on the ground that no large builders were on the register was investigated in the Supreme Court yesterday before Mr Justice Stanton. The hearing will continue on Monday. Carter, personally, and Maurice R. Carter, Ltd. moved to rectify the share register of Dominion Builders Supplies. Mr W. F. Brown appeared for Carter, Mr K. A. Gough for Maurice R. Carter. Ltd. and Mr W. K. L. Dougall for Dominion Builders Supplies. The case arose from some transactions on the Christchurch Stock Exchange last September, said Mr Gough. About September 20. a large parcel of 2925 shares in Dominion Builders came on the market, the bulk coming from the estate of the late W. S. Newburgh. The selling was entrusted to T. J. Chamberlain, a broker, who ’ informed another broker, J. H. Griffiths, that they were available for purchase. The following day, Chamberlain placed the parcel “firm” with another broker, Bruce Hamilton, because nothing had happened after his intimation to Griffiths. They were placed after the morning call. Hamilton indicated, in accordance with the rules of the Stock Exchange, that he would purchase the parcel. On the next business day, a Monday, Griffiths, who it appeared had instructions from W. S. Mac Gibbon, indicated that he would like to purchase the parcel for his client. Hamilton agreed to let Griffiths have a smaller parcel of 500 shares although he could have placed the entire parcel, and indeed had instructions to do so. if he wished. On the next day, Mac Gibbon telephoned Hamilton and indicated he would buy all the shares available, said Mr Gough. A few days later, Hamilton allocated 2375 shares to Maurice R. Carter, Ltd. and 500 to MacGibbon through Griffiths, using a third parcel of 25 shares to make up the parcels. On October 1, he had prepared an instrument of transfer and that was referred to Dominion Builders for registration. On October 22, Hamilton was informed by Mac Gibbon, chainman of directors, that the transfer had been rejected and that the directors had exercised their discretion to refuse the transfer. Hamilton, in his affidavit, sad he remembered the conversation. because at the time is seemed to him rather unusual that a chairman of directors of a company which had refused a transfer would communicate direct, with him by telephone. Directors’ Refusal

Two days later, Hamilton received a letter signed by the secretary of the company stating that the directors had refused to register the transfer. The reasons given were that no large builders were on the register and the directors, in the interest of the company, declined to accept the transfer under the power given by clause 22 of the company’s articles of association. A reply was sent by a firm of solicitors, said Mr Gough. The reply said that the transferees were already shareholders, a search of the list of shareholders disclosed other builders, and the shares were quoted on the Stock Exchange, which meant that the shares were readily available and saleable, and that if the transfer was not registered proceedings would be taken. The company’s solicitors replied on October 29, and confirmed the refusal to register the transfer. On October 30, Hamilton met Mac Gibbon and there was some discussion about the shares, said Mr Gough. He asked Mac Gibbon if he was still willing to take shares in the company and MacGibbon replied he could not make any purchase at the moment, but that if Hamilton was stuck with the shares he would see what could be done about it. Grounds for Action

The proceedings to have the transfer of shares registered was begun and grounds that the directors acted capriciously, or mala fide, in refusing to register and that the reasons given for refusing were not sufficient, legally—not whether they were right or wrong, said Mr Gough. After the issue of proceedings, the directors held a further meeting on November 28 and passed another resolution declining to register the transfer because of proceedings having been taken by the applicants.

“After discussions with counsel for Dominion Builders’ Supplies, it has been agreed that, in these procedings, there is no question of the solvency of M. R. Carter, personally, or as a company,” concluded Mr Gough. “No objections are taken against Carter personally. The objections are that the directors consider his increase in the number of shares might have an adverse effect on the trade of Dominion Builders’ Supplies.” Affidavits were filed and a number of witnesses were in Court for questioning. . Carter told Mr Dougall that he agreed that directors were entitled to change their opinions from time to time, and there could be occasions when a person by reason of his occupation could be unacceptable as a shareholder. He had given no thought to the question that he might be unacceptable to the directors because he was a builder and would profit from inside knowledge. He knew the company had a joinery which did work for other builder customers. Prices for joinery were freely exchanged throughout the trade. The prices would be of interest to him. Timber Supplies

Timber supplies had been short in Christchurch before a year ago. If there were shortages and he was a large shareholder or director, the manager (Black) would not be obliged to give him preferential supplies. Mr Dougall: Would you agree it would embarrass him to refuse you?—That might be. So you would get preferential supplies at the expense of other builders? —I would not use my position to get preferential supplies. We have supplies from sources other than Dominion Builders. The directors of Dominion Builders are entitled to their opinion that it was likely to happen. He did not suggest that the directors were acting dishonestly when they saia it was a bad thing that he should be a large share-

holder, said Carter. He could not recall telling Black, when refused i timber, that he would buy shares, snd get all he wanted, or that Black had advised him to stop buying shares. The dividends at 7 per cent, were steady and adequate, and he was buying the shares because they were a good investment. His own company had adequate capital. Dominion Builders was not a unit which would be of value to his company. Carter said, in reply to Mr Gough, that he had never given any thought to being a director of Dominion Builders. William Smith Mac Gibbon said he had never heard any move of Carter being nominated to the directorate. With apopintments to directorates, there was often m.uch lobbying, and he was likely to be the last to hear about it in Dominion Builders. He had nothing whatever against Carter personally. The purchases made by Carter and his company from Dominion Builders were comparatively small. He agreed in principle that it was inadvisable that Carter should be allowed to buy more shares in the company. Only Carter of the customers was a shareholder. He would object in the case of any other builder of the same magnitude of business. He had not known Carter long enough to know whether or not he would use his shareholding to obtain preferential supplies.

“The directors were unanimous in their decision that they were afraid that a large builder or contractor being a/shareholder would have an adverse effect upon the customers of the company, who are, in the main, small builders,’ - said Mac Gibbon to Mr Gough. “That was laid down as policy.” Share Purchases Mac Gibbon said he could not recollect whether the rejection had been discussed before the meeting. He had bought shares over the years and they were now a fairly big lot. It was possible he had purchased 7700 shares in the last 10 years. He was the biggest shareholder. He had in recent times refused to purchase shares unless brokers telephoned him, and he bought then, in the main, so that they would not remain on the market. They were a good investment. He did not traffic in shares. If he was in Carter’s business, he would make a better investment than 7 per cent.

He could not recall telling Hamilton that he would .buy the shares. It was a courtesy call when he told Hamilton that the transfer had been refused. Mr Gough: You act as a trustee and you have read the law on trusts?—Some years ago.

You, know the Companies Act and the duties of a director?— Reasonably well. You know he is in a fiduciary position to shareholders?—Yes. You were interested in buying shares in the Newburgh estate?— I did not know they were in the Newburgh estate. They were offered by Griffiths. You knew the 500 shares you received came from the same source?—Yes, after the transfers had been submitted I had bought from Griffiths. You knew there was a large parcel for sale and that Griffiths had been able to procure only 500?—Yes. You learned when you came to the board meeting that there was 500 for you and a large parcel for Carter. Ltd.?—Yes.

Voting on Board Did you vote on the rejection of Carter’s transfer and on the principle established by the company? —Yes. Did you inform the directors that you had been endeavouring to buy those shares?—l had no interest in the shares. I did not secure any except that 500. It is very difficult. It is not. —The board members knew I had been too late to purchase the shares. Did you inform them at the meeting?—They knew. Did you inform them at the meeting?—At one of the meetings. At the first meeting they had full knowledge. At the meeting on November 28 two additional directors were present. Did you tell them the whole story?—The whole story of the shares had been told at both meetings.