WAIRAKEI INVESTMENTS

New Zealand Herald, Volume LX, Issue 18556, 14 November 1923, Page 7

WAIRAKEI INVESTMENTS

DISPUTE ABOUT SHARES.

MEANING OF "ALLOTMENT."

CLAIM BY VENDOR OF PROPERTY.

The hearing of an application for a decree for the specific performance of a contract alleged in respect. of shares in Wairakei, Ltd., was continued by Mr. Justice Herdman in the Supreme Court yesterday. The application was brought by Mrs. J. S. Grierson (Mr. Northcroft and Mr. Hore), who alleged that by a contract) entered into between herself and Arthur Cleave (Mr. R. McVeagh and Mr. Towle) the latter undertook, when' 70,000 shares had been allotted by the company to take j over 2000 shares from her. Plaintiff alleged that 70,000 shares had been allotted, but this was disputed by defendant. The question was whether the effect of certain resolutions and acts of the company were to be regarded ns allotments of shares. Mr. Northcroft. addressing the Court, said the case for the defence, as be understood it, was that defendant -challoneed tho contention that 70,000 shares had been allotted at January 21. 1921. Plaintiff's case was that .the total allotments, referred to specifically by Restell, the secretary to tho comnanv, which were covered bv resolutions, describing them as allotments, was 73.621. Allotments in dispute were 3500 shares to an applicant who was subsennentlv declared to be of unsound mind. 100 shares to Lucas. (VO shares to Gibbs. and o to Restell. He did not include the 5050 shares to Cleave, as the latter, in bis answers to interrogatories, bad said thev were a!lot ted to him. The cha'lonsre about that number was that the 5050 shares should not be included in addition to allotments to Lucas and fiibbs. His Honor There can be no doubt the company allotted 5050 shares, either to | Cleave, or to Cleave and Lucas and fiibbs. i Mr. Northcroft: T say they allotted 5050 to Cleave in addition to those to Lucas and Hibbs. Continuing, counsel j counsel said +hnt annarentlv Cleave only transferred 4350. and so would annear sti'l ! to own 700 of the shares. As to the 700 shares for Lucas and Gibbs, v tbev relied j nnon the signed amplications which bad I been nut in. Lucas, he said, bad raid the allotment money and calls to Restell. and, from the evidence, the moncv was paid to Cleave. Oibhs also hp<\ naid tb e appropriate instalments to Restell. The names of both fb'hhs and Lucas wer« recorded in the register. a« well as in the aMofment book. Plaintiff's contention n-as that 0 10 allotment bv Wairakei, Ltd.. of 70.000 .shares-did not mean, as an-arenfly it was claimed to wp-in bv defendant, the const ftntion of 70O<Y> members, nor, the availability of £70.000 share ca«i*al. Allotment was not synonmous with tbe issue of shares; it was only one step in the contract of member-shin. Allotment was the appropriation bv directors bv resolu♦ion of a certain number of shares. In , the case of Cfleavft's 5050 shares there h*d been a verbal application ; that was sufficient, and it was followed by an allotment. His Honor : You sav really that all yon rermire to prove is that there were applications for shares, and resolutions passed allotting them? Transferring of Shares. Counsel: That is our case. It was not nectary, be submitted, to follow the*, subsequent historv of the shares. As to the case of L. C. Johnson, of Sydney, counsel thought there could be no Question k't that that annlicant's 5000 shares were pronely allotted. His Honor remarked that the allotment was cancelled. He did not know what effect that would have. The shares trot into the bands of Restell, and, excepting 50 of them, were disposed of to other people who had put in applications. They did not apply for shares that had been allotted to someone else. Mr. Northcroft said they were induced to sign transfers which the directors then accepted. He contended that Johnson first of all was made a member properly and regularly, and subsequently there was an abortive attempt to void his'share holding. He argued that the attempt to void the share holding was never completed and never made effective. The application money was paid by Cleave, but the allotment money had never been paid. Johnson became bankrupt in March, 1919, and * shortly after there appeared a minute in the company's minute bpok which seemed to be an attempt by the company to transfer Johnson's shares. The company, counsel submitted, could not transfer the shares from one name to another without some proper authority to do so. The cum pany's solicitors, in a letter to the official assignee at f ydney, said the directors proposed to register Cleave as the owner of Johnson's shares,, and the official assignee said he had no objection. That might be a forfeiture; it was open to the company to exercise its powers of forfeiture or to transfer the shares on re ceipt of an application for transfer signed by tho official assignee. It was open to the official assignee to disclaim the contract. Plaintiff contended that none of those three courses was adopted. What did lake place was done by resolution' and he submitted that the. eifect of thairesolution was to constitute Restell a shareholder, but without terminating the share-holding of Johnson, His Honour: There was no application or allotment by Restell. Council, continuing, said the resolution constituted an allotment. His Honour: Suppose I hold that the shares are still tho property of the official assignee in Johnson's estate. Counsel: Then Restell has become the owner of another 5,000 shares. His Honour: Johnson had 5,000 shares allotted to him, an.-* Restell got Johnson's shares. Counsel: Restell got shares. We say tho act of thev company, the passing of the resolution, could not operate to trans- ! fer the shares because it* was not preceded by the proper steps. The company had, council continued, really issued more shares than it thought it had. There had never been any effective divesting of the shares by Johnson.- ' , Shares Held By The Defendant. Counsel then dealt at length with the 5050 shares allotted to Cleave in respect of the balance of purchase money uue to him from the company. The two shareholders, Lucas and Gibbs, he said, had made an application for original shares. There had, however, been some practice adopted by Cleave by which Lucas and Gibbs were given shares which it was contemplated were going to Cleave, but which then had not been allotted to Cleave. His Honor pointed out that it could not be disputed there was an allotment of 5050 shares to Cleave. Counsel: That is so. We say the shares of Lucas and Gibbs did not come within that number. . The procedure in. regard to Gibbs and Lucas's shares was for notices of instalments to be sent out from the company's office and as this money was received it was banded to Cleave. It was a most extraordinary procedure. / His Honor: It is a puzzle to me. Counsel said it was a puzzle that Cleave was allowed to manipulate the shares in that way to his own advantage. His Honor: The directors were cognizant, of it. It is their responsibility. • Counsel said the suggestion advanced by Cleave was that the/number 5050 was a mistake and should have been 4350, because 700 of the original lot had alimdy gone to Lucas and Gibbs. His Honor: The answer to that is that ho got the application and allotment money and all other calls in respect ol Lucas and Gibbs' shares. Counsel; That is so. Cleave was Tirosent when Lucas and Gibbs' shares-were supposed to have been allotted, as being from Cleave's parcel. Notwithstanding that he was supposed to have got 700 of those 6050 shares, he still received 5050. Counsel contended that they had a. right lo fount, the 700 shares as allotments in addition to the £050. Cleave was present at thS allotment of his own 5050 shares and also at the allotment of 700 shares to Lucas and Gibbs, therefore he was estopped from saying that the 5050 shares was a mistake and should have been 4350.

Dealing with 3500 shares allotted to * man who was later found to be of unsound mind, counsel contended thai here there had been an effective allotment. What happened subsequently was unimportant. Mr Hore addressed the Court in regard to the last mentioned parcel of 5500 shares. The solicitor for the company, lie said, in writing to the public trustee stated that the shares had been properly allotted. Counsel submitted that the directors had no power to can: eel that allotment. There was a complete contract and the directors could not afterwards cancel it in the way they had purported to do. . * Case for the Defence. Mr. MeVeagh, in opening for the defence, said the one issuo was this : — " Havo 70,000 shares been allotted?" That involved the meaning of the term "allotment," in the way the parties had 'Used it in the agreement, and having regard also to the surrounding circumstances which have been put into the evidence. He submitted that " allotment" meant an effective, available allotment, one providing capital. His Honor : You contend that it means an allotment which amounts Co a contract with the company. Counsel: Undoubtedly. The obvious purpose was, counsel continued, to ensure that before Cleave's liability arose th. .-e would be a capital organised to the extent of £70,000. Having _ regard to fhat purpose, defendant said it could not be construed so as to permit of the same shares being counted more than once. If that were so it would lead to an absurdity. It was conceivable to take a case in which 10,000 shares might be allotted seven times over, allotted and cancelled time after time. His Honor: If there is an effective available allotment, you do not contend that if that allotment is cancelled it ceases to be an allotment? Counsel said that if there were, an effective allotment of shares and that allotment was cancelled, then if the same shares were issued to somebody else, that j was only one allotment. rT's Honor : Suppose I became a shareholder and failed to ' pay calls and the shares were forfeited. Then they would become the property of the company. Counsel said that was so. His Honor*: Those forfeited shares would be on the same footing as shares that could be offered on the "market for subscription. £70,000 Capital in View. Counsel referred again to the suggestion that a parcel of 10,000 shares might be allotted seven times over, and said such a procedure would frustrate the agreement. The parties to the present agreement had, he contended this purpose in view that there should be an organised capital of £70,000- That must be construed in a fair, reasonable an<J business-like sense. The obvious intention of the parties was that that construction should be placed on the agreement. Having regard to the resolution of June 4, 1919, which provided that Cleave was not to be entitled to any further consideration until 70,000 shares had been allotted, they got a glimpse of what was in his mind. His Honor: You don't suggest that the 70,000 shares should bo fully paid up? Counsel : Suppose 70,000 shares were and nothing was paid by the, applicants, and then they were forfeited. Could it be contended that that was an allotment of 70,000 shares within the intent of the agreement now before the Court? To hold that would be to defeat the purnoses of the parties. His Honor said he could quite understand that the same shares should not be counted twice. Counsel said the grand total of allotment* anoted bv Mr. Northcroft contained shares which could not properly be considered as coming within the mean- ! ing of the agreement. If they accepted j the proposition that the obvious intention of the parties must be the dominat- i ing consideration, then they honed to be able to show that less than 70000 shares J had been allotted. They must not allow ; the literal interpretation to defeat the intention of the parties. In the usual j sense the allotment meant the creation of j a (contract between the applicant and the I coin v, whereby the former became a i sharer in the company's property. What Constitutes Transfer? As to Johnson's shares, defendant's j contention was that there had been onlr one allotment of those 5000 shares. The j disclaimer by the official assignee and the : correspondence which had passed, amounted to a transfer of Johnson's shares to Restell, and it carried out the intentions of all parties. His Honor: How are the shares vested in Restell? j Counsel contended that in substance and in effect there had been a transfer to Restell or Cleave. He did not consider it was an allotment in the sense of the term used in the agreement. His Honor: Either it is a transfer of i Johnson's shares or it is nothing a.t all. Counsel said th© transfer was in substance, form and effect a transfer. It j could not be an allotment to Johnson to the present day, and also a transfer to Restell. ' Counsel dealt at length with the circumstances attending the allotment of 3500 shares to a roan who became of unsound mind. The cancelation of thogo shares ant:- the removing of the man's name from the register was., ho argued, within the competence of the directors, as being a compromise of a disputed ouesti'in. There was, he contended, no allotment withia the meaning of the agreement. The case was adjourned until to-day, when Mr. McVeagh will conclude the statement for the defence.