THE COURTS.

New Zealand Mail, Issue 705, 4 September 1885, Page 23

THE COURTS.

SUPREME COURT. o NELSON DISTRICT. Malcolm and another (Appellants), v. United Copper Mining Company and others (Respondents). (Judgment of Richmond, J. Delivered, July 15, 1885). This is an appeal, upon a special case stated by the parties, from a decision of the Nelson District Court, refusing an application under section 35 of the Mining Companies Act, 1872, for rectification of the share-register of the respondent company. The appellant, James Malcolm, was up to the 16fch December last the registered holder of 2350 shares in the company, subject to an equitable mortgage of the same to the National Bank of New Zealand for securing his account current with the bank. The appellant, Alexander Michie, is the manager of the bank at Dunedin, and represents the bank in the present proceeding. On the 9th December, the Bailiff of the Resident Magistrate’s Court, acting under a distresswarrant, issued out of that Court upon a judgment recovered against Malcolm, seized, or affected to be seize, the shares standing in Malcolm’s name. The mode of this proceeding is particularly described in the case, but I do not find it necessary to refer to it. On the 16th December, the bailiff caused 1500 of the shares to be sold by public auction to seven persons, six of whom are respondents on this appeal. The seventh purchaser, who bought 100 of the shares, afterwards disposed of them to the respondent Joseph Smythe. On the day of the sale, the bailiff executed transfers of the 1500 shares to the several purchasers at the sale ; and these were registered by the company. Notice that the bank held a lien over all shares in Malcolm’s name had been given to the company on the 7th March, 1884; and a more formal and complete notice that the 2350 shares had been equitably assigned to the bank, and that the bank held the sharecertificates, was read aloud in the presence of the seven original purchasers by the solicitor of the bank at the bailiff 1 s sale, before the bidding began. Smythe, however, is to he taken to be a purchaser without notice.

The case was argued before me at Nelson, and on the part of the respondents it did not appear to be denied that the bank might have a right in some proper form of proceeding to enforce its charge against the original purchasers at the bailiff's sale. Yet there appears to be a lurking notion, which has influenced the respondents, that under this Act nothing is to be regarded but the registered title, and that persons who obtain transfers from the registered shareholders, or transfers passing his legal interests, are not affected even by express notice of trusts or equitable encumbrances. For this notion there is not the slightest foundation. The only provisions of the Act which can affect the question are sections 27, 33, 34, and 133. Section 33 establishes a register of shareholders ; section 34 makes the register prima facie evidence of the truth of all matters therein contained, which are by the Act required or authorized to be inserted therein. Section 27 enacts (subject to an exception which is immaterial) that no share shall be deemed to be transferred unless and until the name of the transferee be entered in the register. Sections 28 and 29 have been repealed by the amending Act of 1883. These sections contain very peculiar provisions as to the method of transferring shares. Had they remained in force they would not, however, have affected the present question. Section 133, so far as I am at present concerned with it, simply makes shares transferrable as personal estate. There is no provision in the Act corresponding with section 30 of the English Companies Act, 1862, which enacts that no notice of any trust shall be entered on the register or be receivable by the registrar. ' The important provision is section 27, and its effect is undoubtedly to make an entry on the register necessary to transmit the legal ownership, and to confer the rights of a shareholder as against the company. But this provision falls far short of what is necessary to exclude the effects of notice. The validity of an agreement to transfer shares, or to hold them upon trust for another person, either absolutely or by way of security, as between the parties to the agreement, cannot be called in question. Now, for any person who is cognizant of the existence and effect of such an agreement to deal with the trustee as if he were the absolute

owner to the prejudice of the right of the cestui que trust, and in spite of his protest, is merely fraudulent. Notice in such case constitutes fraud, as it is curtly expressed ; and so I have quite recently held in a case arising under section 119 of the Land Transfer Act, 1870. Obviously, therefore, it needs an express and very stringent 1 statutory provision to exclude the effect of notice. There is nothing like such an enactment in the Mining Companies Act. 5 The weakness of its provisions in this particular will be obvious on comparing section 27 and the sections to which I have referred with section 43 of the Merchant Shipping Act, 1554, or with sections 46 and 119 of the Land Transfer Act, 1870. Supposing, therefore, that the bank can make out an equitable title, the fact that the purchasers at the bailiff s sale have obtained a title on the register (if they have obtained one), will not of itself afford them protection. But before considering what are the substantial rights of the bank, it is necessary to examine the objections which have been made, or may be made, to the form of prorcedure. Assuming that the register, as it now stands, exhibits the true legal as distinguished from the equitable title, it may be said that the company is not in default* and that the summary remedy by application to rectify the register is not appropriate or convenient. This raises the question what is the duty of the company in relation to notices which it may receive of equitable interests. It so happens that this subject has been recently discussed in England by the Court of Appeal in the case—Socidte G6n6rale de Paris v. Tramways Union Company, 54 L.J., Q.8.D., 177, to which I have ; been referred by Mr Pitt. Having regard' to the provisions of section 30 of the Companies Act, 1862, —to which however it -will be remembered there is nothing analogous in the Mining Companies Act, 1872 —all the members of the Court were of opinion that a company incorporated under that Act was not bound to recognise trusts, or to pay any attention to notices of equitable interests in shares. Nevertheless, Lords Justices Cotton and Lindley were of opinion that ‘-i directors might make themselves personally responsible if they registered a transfer inconsistent with an equitable claim of which they had received notice. Lord Justice • Lindley further said : “In the absence of some statutory enactment entitling companies to ignore notices of equitable assignment, it is, to say the least, doubtful whether they can safely do so, even thought ■ they may attempt to entitle themselves s© to do by agreement or otherwise—see Williams v. Thorp, 2 Sim. 257 —The sec- - J tion in question (section 30) appears to me to remove this doubt, and to relieve companies registered under the Companies Act, 1862, from the duty of attending to mere notices of equitable interests.” It is, there- j fore, a grave question, whether this company was not bound by the notice which it received. It is not, however, necessary for ’’ ■ the moment to come to a positive conclusion on this point. There did at one time exist a doubt in England whether the jurisdiction to rectify the register under section 35 of the Companies Act, extends to cases where the company is not in default. That doubt, however, is set at rest by the decision of the Court of Appeal in ex parte Shaw, L.R. 2 Q.8.D., 463. The ground for the doubt arose on the peculiar provision of section 35, under which costs could be awarded either against the applicant, or against the company, but not against a third party. From this it was inferred that the jurisdiction did not extend to the decision of questions of title between the applicant and a third party. But under the Mining Companies Act, 1872, the Court may make such order as to costs as shall be just; so that that ground for doubt never could exist here. At all events it is made clear by the decision in ex parte Shaw on the corresponding provision in the English Act that the jurisdiction extends to the decision of questions of title arising betwen the applicant and a third party, and is not limited to cases in which the company is in fault ; and the opinion to the contrary of Lord Cairns in Ward and Henry’s case, L.R. 2 Ch. 431, must be considered as over-ruled. This applies a fortiori to the provision of section 35 of the Colonial Hct. But there is another point on which the opinion of Lord Cairns, backed by that of the late Master of the Rolls, as expressed in' ex parte Sargent, L.R. 17 Eq. 273, may be thought to affect the present proceeding ; for I am assuming, and Ithiuk loughtto assume, that the English decisions on section 35 of the Companies .Act, 1862, should govern the interpretation of section 35 of the Mining Companies Act, 1572, as amended by section 5 of the Act of 1883. Both thos* eminent Judges held that an application for rectification of the register was not intended to stand in the place of a suit for specific performance. In this view several of the Judges, both in the Court below and in the Court of Appeal, in ex parte Shaw, express concurrence. In ex parte Sargent, as at first presented to the Court, the Master of the Rolls had before him an application fouuded only on a contract to transfer shares ; and he declined to make an order, saying that he thought he had no jurisdiction to decree specific performance of a contract to transfer. But he went somewhat further, saying, that in his opinion the power of the Court under the section did not extend to the decision of equitable questions of title arising between the applicant and third parties ;and that the applicant must‘show a legal title to the shares. It is true he seems to base this opinion upon that defective provision as to costs to which I have already referred, —a defect which does not exist in the Colonial Act. But the same opinion had been advanced upon a broader ground by Lord Cairns in Ward and Henry's case. The application, Lord Cairns had argued, is to. rectify the register ; but if the register as it stands is in accordance with the existing legal title there is nothing to rectify. The applicant may be equitably entitled, but a prior proceeding is needed to enforce that equity so as to give the applicant a title to call upon the company to make an alteration in the register. Such is the argument. It cannot, however, be considered as settled by English authority that the Court will in no case give direct effect by an order under section 35 to an equitable right to be placed on the register, however clear that s; right may be. Such a doctrine could only .

be founded on supposed convenience, for the j words of the English, as of the. Colonial Acts, are large enough to take in all controversies between persons preferring adverse ■claims to be on the register, whether on legal or equitable grounds. As regards the views expressed by Lord Cairns and Sir George Jessel it must be remembered that they° are founded to some extent on the opinion, which must now be deemed erroneous, that the jurisdiction only exists where the company is in default; and to some extent on the defective provision of the English Act as to costs. And it should also be remembered that .Lord Justice Turner, no mean. authority, was of opinion that even questions of specific performance are within the words of the provision, though he admitted that but few of such cases could be properly dealt with under it. (Ward and Henry’s case 2 Ch. App. at p. 437.) Granting that the present application can properly be regarded as one based on a purely equitable ground, I can see no reason why justice may not be done (there being no controverted question of fact) by proceeding under section 35 as completely as in a suit; and convenience is altogether against turning a party round upon an objection of this character where the question is purely one of law or equity to be determined by a Judge. Nor is it by any means clear that such a proceeding as the present comes within the scope of the observations of Lord Cairns and Sir George Jessel. The appellants are not asking for specific performance, but are complaining of a wrong. Supposing that the bailiff’s transfers were ineffectual, as the appellants contend they were, the legal is nowin Michie. Supposing that the transfers were effectual at law, but not in equity, still the appellants make a direct claim, and assert a perfect right to the legal estate, of which Malcolm, they say, was wrongfully dispossessed. On the whole I come to the conclusion that the application should not be rejected upon the ground that the applicants do not show a legal title if in fact they do not show one. (To be continued.)