Carruth v Imperial Chemical Industries Ltd

Lorp BLANESBURGH. My Lords, at the
close of the arguments in this case I had, like the rest of your
Lordships, reached the conclusion, albeit possibly by a some-
what lonely road, that the order of Eve J. confirming the re-
duction of the respondent Company's capital must stand, and
that this appeal from the order of the Court of Appeal, affirming

A. C. AND PRIVY COUNCIL.

that of the learned judge, should be dismissed, although in the
circumstances without costs.

For the respondent Company, with its 180,000 shareholders
and world-wide commitments, it was obviously of first im-
portance that there should be no further suspense as to the
result of its reduction petition now that finality had at long
last been reached. Of hardly less importance, on the other
hand, was it, that the reasons, which had led your Lordships
in effect to accede to the prayer of that petition, should be
carefully formulated and individually stated in a case of such
magnitude, of such moment to the parties immediately con-
cerned, and of such general interest to those engaged in
company administration. It was accordingly decided by your
Lordships that, while the formal order of the House dismissing
the appeal should at once be made, the reasons therefor should
be stated on some later occasion. So the order was pro-
mulgated forthwith, and the House is now met that the
reasons which led your Lordships individually to advise it
may be given.

I have had, my Lords, the advantage of reading in print the
opinion which my noble and learned friend Lord Maugham
has prepared and I am glad to be permitted by him to base all
that now follows upon the detailed account he gives of the
complicated facts and circumstances concerning this Company,
its constitution, its scheme of capital reorganization, and the
meetings of shareholders convened to consider that scheme,
all brought under review on the appeal. It will, as a result,
be unnecessary for me to travel over that ground again, and
any additions I may be tempted to make to my noble friend's
narrative will be introduced for no other purpose than to
accentuate my own point of view.

And first may I say a word about the appeal, and the
position of the appellant with reference to it.

It is an appeal by a single deferred shareholder in the
Company seeking to have the approval of the House withheld
from a reduction of the Company's paid up deferred share
capital. The appellant did not, however, really stand alone.
He voiced the opposition to the scheme of many other deferred

3 3,532

731

H. L. (E,)
1937

—
CARRUTH

Uv.
IMPERIAL
CHEMICAL
INDUSTRIES,
ie.

Lord
Blanesburgh.

732

eee (E:)
1937
—
CARRUTH
v.
IMPERIAL
CHEMICAL

INDUSTRIES,
ips

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

shareholders although not strictly representing them at the
hearing. But notwithstanding this support, the appellant
must have realized that very heavy upon him was the
burden of the appeal. Agreeing with the utmost frankness
that the scheme of reduction which he contested had been
promulgated in perfect good faith, he was faced by the
fact that, to say nothing of its having been apparently
approved by the prescribed majorities of shareholders,
it had on this petition been confirmed successively by
Eve J. and by the Court of Appeal. Nor was the burden
lightened when it was recalled that by the time the appeal
reached this House for hearing more than eighteen months had
elapsed since the reduction resolution had been passed, and
that during that interval the multitude of ordinary and
deferred shareholders in the Company had been encouraged
by the approval of successive Courts to act in relation to their
shares as if the scheme had gone through. Mr. Gavin Simonds,
indeed, on behalf of the Company, influenced, I do not doubt,
by such considerations as these, strongly contended that an
order confirming a reduction resolution, being a discretionary
order, would not, although technically open to appeal, be
reviewed either by the Court of Appeal or by this House unless
it were made plain that the learned judge of first instance,
confirming the reduction, had seriously misdirected himself
either in fact or in law. There were, as will be seen later,
questions of law raised by this appeal which deprive this
objection of much of its relevance. But while I hesitate to
subscribe in general terms to a view so broadly stated,
I would say at once that, had the appeal raised no issue
beyond those dealt with and disposed of concurrently and
in the exercise of their discretion by the learned judge
and the Court of Appeal, I would have been slow to
advise the House to intervene, whatever might have been
my own view of this reduction had I been considering it
in a Court of first instance. But, as I saw it, that was not the
case here. The course of proceedings in this House had left to
your Lordships for solution a different and a more difficult
problem than any presented either to Eve J. or to the

A. C. AND PRIVY COUNCIL.

Court of Appeal, a problem upon which neither Court had
been called upon to pronounce. Difficulties affecting the
reduction, substantial some of them, had not before been
ventilated as they were here, while the most far-reaching
criticism of all, a criticism which called in question the
justification for the reduction being laid upon the deferred
shares exclusively, was in effective form introduced by one of
your Lordships during the argument in this House, and was
then only and for the first time duly considered.

And, my Lords, on full reflection, I came to be of the opinion
that that criticism was well founded; that the assumption
ultimately made on all sides, that under the Company's
constitution this particular reduction fell first and exclusively
upon the deferred shares, was mistaken: and that, in the
circumstances, it lay upon the petitioners, in the absence
of a class consent, not as I thought forthcoming, to establish
affirmatively that the reduction in its present form was fair
and equitable to the deferred shareholders. It was only
because I was judicially so satisfied that I was ready to concur
and did concur in the order of the House which in effect
confirmed the reduction. It may well be possible to reach the
same conclusion by other and easier ways. But, for me, so
soon as I was satisfied that the incidence of the reduction should
not under the articles have fallen primarily upon the deferred
shares, there was to its confirmation no other road open than
that by which I have travelled if jettison was not to be made
of certain principles in relation to class resolutions which
I hold to be of first importance.

Before proceeding to the general discussion of these matters
I would dispose of a contention of the appellant's which
stood apart and is conveniently considered separately. The
reduction, the appellant urged, was ultra vires the Company
as being unauthorized by its articles of association. Based,
as the reduction was, upon the principle of Poole v. National
Bank of China (1) the appellant could not successfully
contend that it was not authorized by statute. He main-
tained, however, that it was a reduction beyond the purview

(1) [1907] A. C. 229.

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H. L. (E)
1937

CARRUTH
ro
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh.

734

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1937
CARRUTH
v.
{MPERIAL
CHEMICAL

INDUSTRIES,
Lp.

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

of Art. 44. No capital, he pointed out, was being paid
off; none which had been lost or was unrepresented by
available assets was being cancelled ; no liability on shares was
being reduced. What genus, he asked, could be named wide
enough to embrace within it each of these specified methods
and at the same time include this present form of reduction
under the words " or otherwise "' of the article? The answer
was not I thought difficult, if one had to be found. This reduc-
tion, with those specified, shared the characteristic that each
was authorized by statute. And that, I thought, was enough.
Clauson J. in the Court of Appeal states the position in simple
terms. The Company took power by Art. 44, he says, to
reduce its capital in any way in which it was under the statute
authorized so to do. I entirely agreed with the learned judge
in that view. This contention, therefore, as it seemed to
me, failed.

Let me now say a word about this scheme of capital re-
organization of which the reduction of capital was an essential
part. It was a scheme promulgated by the directors in the
general interests of the Company, as was on all hands
recognized, and in circumstances and for purposes fully
described by Clauson J. in his judgment. In embryo the
scheme had its beginning in the memorandum of Dr. Coates
of January 25, 1933. In its details it necessarily became
elaborate and complicated; but, described in terms of its
purpose and result, it was in origin, and it remained throughout
its course, a scheme of marked simplicity notable mainly for
its magnitude. As a result of it, there were to be no longer in
issue any deferred shares in the Company; the holders of
the issued deferred shares were to become holders of ordinary
shares representing one-half in nominal value of their previous
holding in deferred shares. In other words, they were to find
themselves possessed of one fully paid ordinary share of 1/. for
every four of their fully paid deferred shares of tos. each. This
involved a reduction or cancellation in some form of 5s. paid
up on every issued deferred share, an aggregate reduction of
5,434,141l. of paid up deferred capital. But none of that
capital had been lost. It remained intact. The Company had

A. C. AND PRIVY COUNCIL.

been and was highly prosperous. No longer credited to the
deferred shareholders, by whom in meal or in malt the capital
had been provided, it had to be credited somewhere else, and
by the scheme it was transferred to the credit of a capital
reserve account created on terms which, so long as certain
new regulations remained unaltered, ensured that it would not
be returned as dividend to any shareholder. To this provision,
which, as I thought, had received far less attention than it
deserved, I will return later.

Now the great problem in relation to the scheme had been to
equate in terms of value a deferred and an ordinary share in
this Company, two things which with their widely divergent
rights, explained by my noble and learned friend, were, in that
respect, almost incommensurable. The proportion of four to
one finally adopted in the scheme was an adjustment based,
not upon any valuation of the respective rights attached to the
shares, but upon a comparison of the market prices of each
over a period of years, modified or corrected in result by the
special knowledge of the directors, including Dr. Coates, whose
opinion at the date of his memorandum and throughout, I
think, was that a proportion of four to one, if unfavourable in
any direction, was so to the ordinary shares rather than to the
deferred. He shared the opinion held, it would seem, by the
governing directors, that the market price of the deferred,
relatively to that of the ordinary shares had been, as a rule too
indulgent to the deferred : some adjustment in this respect was
not therefore out of place, and some adjustment in this direction,
albeit very slight, was made and reflected in the final proportion.

From the date of its promulgation, the substantial
opposition to the scheme came from deferred shareholders,
although the ordinary shareholders were not unanimous in
its favour. By deferred shareholders it was excepted to
on many grounds: that, for instance, it was ill-timed and
premature, propounded before the permanent relation was
in sight in which following a long period of depression the
deferred shares were to stand to the ordinary. Ultimately
however the real contest with the appellant and his associates
became one as to the fairness to the deferred shares of this

735,

Hiei (E:)
1937
——
CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh,

736

can ee)
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——
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Uv,
IMPERIAL
CHEMICAL

INDUSTRIES,
Lp.

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

proportion of four to one so reached. A proportion of two to
one would have been welcomed by the appellant's party ;
a proportion of three to one might have been accepted, albeit
reluctantly ; the proportion of four to one could not, it was
asserted, be justified, and it had not been as the result of
the elaborate evidence adduced from both sides.

On the other hand a proportion of five to one was the
claim of a few ordinary shareholders—a claim not without
some impartial support from Dr. Coates. These conflicting
demands had been composed in advance by the adoption of
the four to one proportion, a proportion to be made effective,
as has been seen, by the reduction of 5s., or 50 per cent., of the
nominal value of every deferred share. And at this point it
is perhaps helpful to emphasize the essential inter-connection
under a scheme in this form between the amount of the
reduction of the deferred shares and the number of ordinary
shares under the scheme to be received by the deferred share-
holder in exchange. If one ordinary share for every five
deferred was to be received the reduction must have been 6s.
on every deferred share ; if the proportion were fixed at four
to one, the reduction, as we have seen, was 5s.; if three to
one, the reduction must have been 3s. 4d. only ; if two-and-
a-half to one, or five to two, the reduction would have been
no more than 2s. per share; and if two to one had been
made the fixed proportion (the ideal of the deferred share-
holder), then there needed to be, and there would have been,
no reduction at all and no application to the Court would have
been called for. In other words, the reduction where it was
necessary had to be such that the reduced deferred shares
could, in accordance with the pre-arranged proportion, be
amalgamated with the ordinary shares pound for pound,
It is perhaps well to bear this essential inter-connection in
mind, because the only judicial confirmation asked for by
the Company's petition was a confirmation of the reduction
necessarily involved in its scheme. No confirmation of the
scheme as a whole was either appropriate or craved. Any
objection therefore taken by the appellant to the order
appealed from had, if it was to have effect, to be a valid

A. C. AND PRIVY COUNCIL.

objection to the reduction, as such. Unless this limitation
were borne in mind there was a real risk, I felt, that error
might supervene in disposing of the appeal for the reason
that the principles applied by the Court when dealing with
reduction petitions are in many respects individual and
special—particularly, if the reduction in question be one which
is not in accordance with what I may call the "law" of the
articles, like the present reduction, as I will presently essay to
show. This is not to say of course that the fairness or other-
wise of the proportion fixed by the scheme was not open to
discussion on the petition. It was completely so open, but
strictly perhaps in the form of an objection to the extent
of the reduction one way or the other. For, as the number of
new ordinary shares to be received in respect of reduced
deferred shares was dependent on the extent of the reduction,
its amount was as vital to an old ordinary as it was to a deferred
shareholder, although from quite opposite points of view.
From that of the opposing ordinary shareholder the reduction
to be fair should have been greater, while any less reduction
than that proposed would be a further injury to his class.
To the opposing deferred shareholder, on the other hand, the
proposed reduction was already unfair ; any greater reduction
would be to him a further injury. In other words the
acceptance of the reduction in point of amount meant to a
critical ordinary shareholder an acceptance of an amount
which he had claimed should be greater, and to the deferred
shareholder it meant the submission to an amount which he had
claimed should be less. It was right therefore—even if not
under the articles necessary—that both classes and in identical
terms should have been separately asked to approve the
reduction in point of amount. And this they were in effect
asked to do and, at all events, did, if they did no more, by
the extraordinary resolutions to which my noble friend has
referred.

Now it was almost as a matter of course that the burden of
the reduction was thrown upon the deferred shares exclusively.
Having regard to relative values it was essential, if the scheme
was to work at all, that ultimately any necessary reduction

737

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1937
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CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh,

738

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1937
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CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

should fall upon them. But if these shares were not under the
articles liable to bear the entire burden, its necessary imposition
upon them by any scheme would naturally be, as regarded
amount, a question of terms to be negotiated between the
two classes of shares. But no such negotiation in this case
took place, for the reason, as I opine, that on the question
of the proper incidence of the reduction, there was not supposed
to be anything to negotiate about. The Company's view as to
the position of the deferred shares had apparently become
clear. It was assumed, naturally enough perhaps, although,
I now believe, erroneously, that so soon as the proportions had
been fixed, and with them the consequential reduction amount,
the burden of the reduction as a matter of law no less than as a
matter of business fell without more upon the deferred shares
and on them alone. It was, I thought, plain that in the
view of the Company the first, indeed the only thing that really
mattered was the proportion in which the ordinary and
deferred shares were to be taken and given. And the fairness
or otherwise of that proportion—fraud of any kind being out
of the question—was a matter for the shareholders in their
different classes to decide and for no one else. Up to this point
no approval of the Court was required, and everything after
the point had been passed was mere machinery to give the
amalgamation in that fixed proportion full effect. The
alterations of the articles; the extraordinary resolutions at
separate meetings ; the necessary reduction of 50 per cent.
of paid up deferred capital—these were all of them mere
incidents in the procedure by which the deferred shares
of the Company were to become amalgamated with its
ordinary shares in the predetermined proportion. The only
difference between the reduction and these other incidents was
that its final effectiveness was dependent upon its being
confirmed by the Court. The reduction was, however, merely
the "last step," the "' final step," of a scheme already approved
in principle—it was so regarded by the Company and it was so
described by Clauson J. who accepted, as will be seen, without
discussion the view that the reduction " lawfully '' fell upon
the deferred shares exclusively.

A. C. AND PRIVY COUNCIL.

That this was the view of the directors became, I thought,
clear by two governing pronouncements of theirs; the first,
the chairman's speech commending the scheme to the share-
holders at the extraordinary general meeting of the Company
held on May 1, 1935, and the second, the directors' circular
of April 6, 1935. Referring to criticisms of the scheme
which had been received from shareholders, the chairman
in the course of his speech at the meeting said (Record p. 220) :
"Some shareholders appear to regard the reduction of capital
as a central point of the board's proposals and suggest that,
if it is necessary, sacrifice should be made equally by all classes
of shareholders and not borne by the deferred shareholders
alone. In our case this reduction of the issued capital of the
Company is not the central point of the board's proposals, for
it does not arise because of any loss of shareholders' money, or
because the Company is not prosperous, but as a consequence
of the scheme providing for the substituted shares ranking
pari passu with the existing ordinary shares whereas at present
the deferred shares rank after the ordinary shares."'

There is no ambiguity in these words. They describe the
scheme and its result in its business sense. A deferred share-
holder is, under it, receiving in ordinary shares of the company
shares equal in value to his deferred shares unreduced: from
his point of view, therefore, the reduction of his deferred
shares so far from being a central point is merely one of the
steps necessary to secure for him in exchange for his old
deferred shares his reduced proportion of new ordinary shares,
reduced because these were higher in ranking than his old
shares—the pith and marrow of the scheme.

And in the same sense, although less direct, are the references
to the reduction contained in the directors' circular. There
are, I think, only two of these and as they are brief, I will
quote them.

'" REDUCTION OF THE COMPANY'S SHARE CAPITAL.

"The board's proposals involve a reduction of the Com-
pany's share capital to the extent of one-half of the present
nominal amount of the issued deferred shares, i.e., 5,434,141/.,
and it will therefore be necessary to obtain the confirmation

739

H. L. (E.)
1937
——

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
ep:

Lord
Blanesburgh.

740

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1937
ly

CARRUTH
uv.
IMPERIAL
CHEMICAL

INDUSTRIES,

(Lig

Lord
Blanesburgh.

HOUSE OF LORDS [1987]

of the High Court, before the proposals, if carried by the
shareholders, can become operative."
* * * * * *
'"" PROCEDURE INVOLVED IN CARRYING THE ABOVE PROPOSALS
INTO EFFECT.
* * * * * *

'""2, A class meeting of the ordinary shareholders at which
they will be asked to pass an extraordinary resolution
approving of the proposed reorganization and reduction of the
Company's share capital in so far as these proposals amount
to a variation of the rights and privileges attached to the
ordinary shares.

"3, Aclass meeting of the deferred shareholders at which
they will be asked to pass a similar extraordinary resolution
approving of the proposed reorganization and reduction of the
Company's share capital in so far as these proposals amount
to a variation of the rights and privileges attached to the
deferred shares."

The arresting thing about these statements is that the two
class meetings are described in terms identical ; one does not
find there any suggestion even remote that the reduction
was other than a reduction in the normal course or that, in
relation to its legality, there was any difference at all between
the deferred and the ordinary shares to the disadvantage of
the deferred.

But, if any doubt remained on this point it was
dispelled by the course of the proceedings on the reduction
petition both before Eve J. and the Court of Appeal.
The assumption of the petition being that the incidence of
the reduction rightly fell upon the deferred shares, where it
was placed by the special resolution, the opposing deferred
shareholders apparently, after suggesting the contrary view,
did not persist in their criticism. And in the result the
Company's assumption as to its proper incidence was accepted
by the learned judge, and it became the basis of his order
on the petition, and later the basis also of the order of the
Court of Appeal. " Nor was it ever seriously argued," Eve J.
says in his judgment, "that the burden of the proposed

A. C. AND PRIVY COUNCIL.
iG

reduction was not rightfully imposed on the shares standing
last on the rota for dividend distribution." And to that
question, so settled, he does not again recur, and it was not
revived in the Court of Appeal. So, too, the explanation of
the duty of the Court in considering whether or not it should
confirm a proposed reduction of capital there given by
Clauson J. (Record p. 129) is clearly an explanation of its
duty when the reduction in question is what for brevity
I would now venture to term a regular reduction. And
it was, I think, clearly the learned judge's assumption that
this was one. On that footing there was no suggestion, nor
necessity for the suggestion, that the reduction had become
regular only as a result of the extraordinary resolution passed
at the so-called separate meeting of the deferred shareholders
to which further reference will presently be made.

The effect of Eve J.'s definite finding that the reduction
was regular apart from any such extraordinary resolution is
made plain in his judgment. Having stated that the share-
holders were themselves the best judges of the fairness of the
scheme of which they had approved by the necessary majorities,
the learned judge proceeds : "' As soon as the Court is satisfied
that the resolution has been accepted by the Company and
by those who are affected by it, and there is no suggestion of
any misrepresentation or misconduct on the part of the
Company, the petitioners are entitled to the order."

Was then the assumption justified on which the orders both
of Eve J. and the Court of Appeal were based? Was this
reduction in law or in the result a regular reduction? If it
was not, how far is the petition of the Company to have it
confirmed thereby prejudiced? If again it was not, can the
Company now claim the benefit of that last statement of
Eve J.? As I saw them these were the questions which
demanded an answer, and to them no judicial attention had,
so far, been directed.

And, my Lords, although the answer to the question
whether this reduction was regular does not lie upon the
surface, and although it is not surprising that the question
was never seriously raised until its possibility was suggested

741

H. L. (E.)
1937

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh.

742

H. L. (E.)
1937

ae,
CARRUTH
Vv.
IMPERIAL
CHEMICAL
INDUSTRIES,
ifey

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

by one of your Lordships, still, as already indicated, it
became, I thought, clear that no other than a negative answer
to it was possible. The position was this. While, as has
been seen, there is contained in clause 44 of this Company's
articles a detailed power to reduce capital, there is not to be
found in that or in any other article direct provision as to
the incidence of any reduction thereby authorized. All that
in this connection can be gathered from Art. 44 itself is that
the proper incidence of every reduction there specified cannot
be the same, so varied are the results of the different forms
of reduction mentioned: again, Art. 71 makes it clear that
there may be a reduction of the Company's capital which will
affect a class of shares in a way not authorized by the articles.
And if the articles are examined for answer to the question
whether this was such a reduction, it will be found that except
in the case where the reduction is proposed because capital
has been lost or is unrepresented by available assets, no
justification is therein even by implication disclosed for
throwing any reduction exclusively upon the deferred shares.
The implication that in that one case it may be so thrown,
arises, not perhaps, as Eve J. seems to have thought, from
Art. 113, but from Art. 4 which, in a winding-up, provides
for the return of their capital, first to the preference shares,
next to the ordinary, and lastly to the deferred shares:
and as no surplus assets are available for return to the deferred
shareholders until the prior claims of the holders of the
preference shares and of the ordinary shares in respect of
the amounts paid up thereon have been met in full, it may
properly be implied—it is perhaps a matter of necessary
implication in the absence of any provision elsewhere to the
contrary—that when capital is lost and in consequence reduced
while the Company is a going concern, the reduction should
follow the same order. But in no other case is there room
for any such implication, and here there has been no loss of
capital. And, as to the proper incidence of such a reduction,
no hint escapes from the articles. Nor is that surprising.
This reduction, as has been said, is based on the authority
of Poole v. National Bank of China. (1) But there is,
(1) [1907] A. C, 229.

A. C. AND PRIVY COUNCIL.

your Lordships were told, no reported case in which that
authority has since been invoked, and the difficulties involved
in its application are well understood. They were dwelt upon
by Lord Wrenbury in each edition of his work subsequently
edited by himself. It is not surprising therefore that the
articles here contain no provision, either express or implied,
whereby the incidence of a reduction in character well-nigh
unique is even indicated. Which class of shares in this
Company, it may be asked, is to be charged with a reduction
so exotic that it merely cancels capital credited to a share
in which its holder is solely interested in order that the same
capital may be transferred to a credit in which he is only
fractionally concerned? That is the question, and the
reduction having been held to be authorized by the Act, the
answer must be found in the application to the problem
of appropriate general principle—and that principle must,
I apprehend, be that in this Company the reduction should
be suffered rateably by all three classes of shares therein,
following strangely enough the suggestion of his correspondents
referred to by the chairman in his speech. The truth is that
a reduction of paid up capital, when no loss has been sustained,
is in this Company a reduction against the incidence of which
no share is protected by any other. From the brunt of such
a reduction there is no escape, even for the preference shares.
In this respect their position as against all shares is not to
be distinguished from the position of the ordinary shares as
against the deferred.

Here then was a difficulty interposed which, in my judgment,
had to be displaced in some way before it would have been
proper to confirm the reduction. As the result of the mistaken
assumption no heed had been paid to the question whether
the reduction thrown exclusively on the deferred shares was
as a separate incident in accord or not with the proper burden
of these shares in contrast with the other shares in the
Company. As the result of the same assumption no reference
to this question was made nor had it to be made in the
directors' circular to the shareholders. More important still,
the reduction properly regarded became not a formal last

743

H. L. (E.)
1937
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CARRUTH
ths
IMPERIAL
CHEMICAL
INDUSTRIES,
JLiay,

Lord
Blanesburgh.

744

H. L. (E.)
1937
ee)

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

step in the scheme, but an essential first step, a step which,
except as part of a scheme which was, shall we say, not
unfavourable to their class, was not perhaps likely to be
taken by or expected from a three-fourths majority of deferred
shareholders fully conscious of their key position and their
rights in this respect. Finally—to take one concrete instance
—as the result of the same assumption, no attention had been
given to the question whether, if the legal position of the
deferred shares was being overborne—as on the present
hypothesis it had to be if any scheme of amalgamation was in
this Company to work—the particular sacrifice called for from
them of their 5,434,141/. transferred to capital reserve might
not properly have been diminished so as to carry with it as
a necessary consequence some proportion of ordinary shares
more favourable to them than one of 4 to I.

The result of all this, if it were right, was, as I saw it, that
in hoc statu, this reduction could not be confirmed unless (a) it
could be shown that the reduction had been made regular as
a result of the extraordinary resolution passed at the meeting
of the deferred shareholders on May 1, 1935, or unless (5) on
the principle of British and American Trustee and Finance
Corporation v. Couper (1) the Company had affirmatively
established that the reduction, although not in accord with
the legal rights of the deferred shares, was nevertheless, in the
return received by these shares under the scheme, fair and
equitable to their holders.

Mr. Gavin Simonds for the Company did not accept, but
he did not seriously dispute, the proposition that the reduction
pure and simple was not in accord with the legal rights of
the deferred shareholders under the articles. But he suggested
that this was one entire scheme and that the reduction,
although for statutory reasons it had to be segregated from
the other provisions of the scheme and be brought separately
before the Court for confirmation, ought nevertheless to be
judged by the result to the deferred shareholders of the whole
scheme. His main contention however—and he urged it with
great force and insistence—was that the reduction had become

(t) [1894] A. C. 399.

A. C. AND PRIVY COUNCIL. 745

quite regular by the extraordinary resolution of the deferred H. L. (E)
shareholders consenting to it. That resolution had, under 1937
the articles, made the reduction a matter of contract between Carnutu
all the shareholders, and had the same effect as if the articles a

IMPERIAL

had contained a clause that this particular reduction should Wepre
NDUSTRIES,

fall exclusively upon the deferred shares. The appeal Lp.
must be dealt with on that footing. Such was_ his fees
contention. peewee ssid

In order to test its soundness the terms of the extraordinary
resolution propounded for the consideration of the deferred
shareholders must now be examined. Once again, as in the
directors' circular in relation to the two class meetings the
resolution, mutatis mutandis, is in terms identical with that
propounded to and passed by the class meeting of ordinary
shareholders, and set forth in my noble friend's judgment.
The deferred resolution—I state it for convenience of reference
—is, so far as presently relevant, as follows :—

" That this meeting of the holders of the deferred shares
in the capital of the Company hereby consent on behalf of
all such holders to the arrangement for the reduction and
reorganization of the capital of the Company (including the
amalgamation of the ordinary and reduced deferred shares into
one uniform class of ordinary shares) .... and sanction
the variation of the rights and privileges attached to the
deferred shares in the capital of the Company and the
arrangements and transactions which are expressed to be
effected or authorized by the said resolutions or are involved
therein to the intent that on such resolutions respectively
taking effect they may be valid and effectual and may be
binding on all the holders of the deferred shares."

The appropriate consent there given is, it will be seen, a
consent "' to the arrangement for the reduction ... . of the
capital of the Company " and nothing more.

Now had that resolution been intended by the directors
when they propounded it to record, and had it on its true
construction actually represented, a consent by the deferred
shareholders to a reduction of their shares which in the
language of Art. 71 was "not otherwise authorized by the

A.C. 1937. 3 3C

746 HOUSE OF LORDS [1937]

H.L. (E.) articles,' I would have agreed with Mr. Simonds that, when
1937. passed in accordance with the provisions of that article, the
Carruta resolution would have had the effect attributed to it by him.
But, my Lords, while I express the conclusion with real

IMPERIAL
CuemicaL iffidence, because I know that it may not be reached by

INDUSTRIES, : ,
Lp. either of your Lordships, I feel so satisfied that the resolution
Lord did not have, and could not have been intended to have that

Blanesbur6- effect, that I feel it to be my duty to give expression to

that conviction if merely for the sake of the principle which
underlies it—namely, that only by the clearest words and in
full knowledge of their rights will a class be held bound by
a resolution which it is suggested modifies or extinguishes
these rights. I need only refer to the Quebrada Railway, Land
and Copper Co. (1) for an example of the strictness with which
the Court in relation to reduction rights applies this
principle.

These considerations are apt in relation to that resolution.
If, as I have sought to show, the only reduction then being
propounded was, in respect of its incidence, one which was
entirely regular, I again for brevity's sake use that word,
then no consent of the deferred shareholders by extraordinary
resolution was required to make it so. And such a consent
was not a thing to be asked for without good reason. A
request for it might well have determined the fate of the
whole resolution, as suggesting, rightly or wrongly, a differential
treatment of the deferred shares. It could not, of course,
with any sense have been asked for from the ordinary share-
holders. It would certainly, confined to the deferred share-
holders only, have made it impossible for the class resolutions
of the ordinary and deferred shareholders to be identical in
terms—a distinct addition to the attractions of the scheme.
But that the directors were not, in their belief, asking any
consent from the deferred shareholders to a reduction of their
shares not otherwise authorized by the articles is, to my mind,
clear in the light of the facts and circumstances already de-
tailed disclosing their then attitude to this reduction. Any idea
that the reduction, once it was fixed in amount, was otherwise

(1) (1888) 40 Ch. D. 363.

A. C. AND PRIVY COUNCIL.

than completely normal in every aspect of it was negatived
by these facts and circumstances, that is to say, by the state-
ments regarding it contained in the board's circular, by the
explanation of the incidence of the reduction given in the
chairman's speech, by the foundation on which the reduction
petition was based, and by the Company's attitude on this
subject before Eve J. leading him to the conclusion as to the
proper incidence of the reduction which I have quoted from
his judgment. As a result, I found it impossible to read this
resolution as a conscious invitation to the deferred shareholders
to consent to this reduction as any other than a regular
reduction unless I was prepared at the same time to deny
to the chairman's speech and to the directors' circular
—I say nothing more of the Company's attitude on
the petition—those qualities of candour, frankness and
impartiality which by common consent are the outstanding
characteristics of both. And that, my Lords, I could
not do.

But what, apart from any question of intention, is the true
construction of the words of the resolution on this subject of
reduction ? For this purpose the resolution must be read
in connection with the special resolution which, it was
assumed, would first have been passed by the shareholders
in general meeting: and next, in connection with Art. 71
from which the extraordinary resolution derives its power
and effect. When associated with the special resolution
it is seen that "the rights and privileges '' referred to in the
extraordinary resolution have particular if not exclusive
reference to the "rights and privileges '' specified in s. 3, sub-s. 2,
of the special resolution, and these are not concerned with
the incidence of any reduction. And when reference is made
to Art. 71, that article provides, it will be seen, for the consent
being given by extraordinary resolution at a class meeting
(inter alia) (z.) "to the amalgamation into one class of the
shares of any two or more classes" ; and (2.) " to any scheme
for the reduction of the Company's capital affecting the class
of shares in a manner not otherwise authorized by these

3 su@r2

747

H. L. (E.)
1937

~
CARRUTH

Uv.
IMPERIAL
CHEMICAL

INDUSTRIES,

Bey

Lord
Blanesburgh.

748

P(E.)
1937
——
CARRUTH
v.
IMPERIAL
CHEMICAL

INDUSTRIES,
kept

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

articles.'' Now if these two provisions are transferred to the
text of the extraordinary resolution, it is found that without any
compelling necessity and clearly for certainty only the words
with reference to amalgamation are textually reproduced in
the resolution: but from it in relation to reduction any
reference to the final emphatic words of the article is with equal
significance altogether omitted. Upon this, my Lords, treating
the matter as one of construction only, the suggestion must be
that those emphatic words of Art. 71, although not expressed,
are to be implied in the extraordinary resolution; that is
to say there are to be deemed inserted there after the words
"capital of the Company'' some such words as these:
" notwithstanding in regard to the reduction that it affects
this class of deferred shares in a manner not otherwise
authorized by the Company's articles of association and
including,"' etc.

Now (passing by for the moment the possibility of implying
any such words in this resolution), I presume that if capable
of being implied there, the words by parity of reasoning are
capable mutatis mutandis of being implied also in the ordinary
shareholders' resolution. But such further implication is
in that resolution demonstrably inadmissible. For, so far as
the ordinary shares are concerned, the incidence of this reduc-
tion—one suffered by the deferred shares alone—touches them
no more than it touches the preference shares : and with regard
to these not only was no consent asked for but it was stated in
the directors' circular, and quite correctly, that the rights of
the preference shares were entirely unaffected by the board's
proposals. And if, as touching the deferred shareholders'
resolution, the question be now considered on what I may call
its merits, equally inadmissible, although for a different
reason, is the suggestion that any such words should: be
implied therein ; for such an implication would at once run
counter to the published official statements with reference to
the reduction and to the other matters already detailed, all
of them completely inconsistent with the suggested implica-
tion which thereby becomes impossible. In other words, the
implication of the words in the ordinary shareholders' resolution

A. C. AND PRIVY COUNCIL.

would introduce absurdity, and, in the deferred shareholders',
contradiction.

But, my Lords, perhaps a sufficient reason against resorting
here to implications for purposes of construction is that the
meaning of both extraordinary resolutions on this subject of
reduction is sufficiently clear without making any implications
at all. What, let it be asked, is the aspect of this reduction—a
necessary part of a larger scheme—which, while common to
both ordinary and deferred shares, leaves the preference shares
quite unaffected? And the answer is, as I have already
explained, its amount. The effect on this subject of the two
resolutions, when duly passed, was in my judgment this—
that in amount the shareholders both ordinary and deferred
became consenting parties to a reduction of 5,434,141/., no
more and no less, and on this head they consented to
nothing else. In particular no consent from the deferred
Shareholders to the incidence of this reduction being laid
exclusively upon their shares, notwithstanding that such
incidence was not otherwise authorized by the Articles, was
either asked for or given; and for the reason that, by a
mistaken assumption, no such consent was considered to be
necessary.

In the result therefore, notwithstanding Mr. Simonds'
argument to the contrary, it was not, in my judgment, possible
to regard the reduction as having been regularized by the
extraordinary resolution of the deferred shareholders. It
follows in my view, as matters then stood, that no confirma-
tion of that reduction could be given unless the Court—and
now. this House—was able to avow itself on the evidence
judicially satisfied that this reduction, not in accordance
with the Company's articles, was nevertheless in effect
fair and equitable to the deferred shareholders: Couper's
case. (1)

And here was a very different problem from that with
which either Eve J. or the Court of Appeal had to deal.
The right of the Company to an order confirming the reduction
enunciated by the learned judge applied to what he conceived

(1) [1894] A. C. 399.

749.

EL (3)
1937
—
CARRUTH
v

IMPERIAL
CHEMICAL

INDUSTRIES,

Lp.

Lord
Blanesburgh.

750 HOUSE OF LORDS [1987]

H.L.(E.) to bea regular reduction ; it was not applicable to one no longer

1937 + regular, the vital distinction being, that whereas the learned
Carnutn judge and the Court of Appeal were dealing with a reduction
Iuprrra, Which was described as being a last step—almost a formal
CueMIcAL step—in an elaborate scheme, your Lordships were now

ee called upon to deal with a reduction which I have termed a
Lord first and essential step in the scheme—a step which the
Blanesbursh- deferred shareholders would not by any Court be forced to
take except upon terms affirmatively shown to be fair and
just to themselves. Can the terms in this instance properly

be so described ? That was the question.

My Lords, I very anxiously considered it. It was not an
easy question to answer. Had it arisen before Eve J. very
shortly after the passing of the reduction resolution the
safest answer, adopting in principle the Quebrada Co. (1),
would have followed a further separate meeting of the deferred
shareholders duly summoned to consider a resolution couched
in unambiguous language. But for the House to direct such a
meeting to be convened after an interval of over eighteen
months would not have been just to the other interests in the
Company, and would have been an indulgence to the appellant's
party to which they were in no way entitled, seeing that the
new aspect of the case which called for such a meeting, if ever it
had been seen by them clearly, had been ignored after the
first hearing of the petition. And no application that a second
meeting of deferred shareholders should be directed was made
by the respondent Company. The Company was naturally
content that the question with the appellant should be settled
on existing materials. The question therefore had to be
answered judicially on these materials only. And the answer
can be briefly stated.

My Lords, it had been, I thought, quite clearly demonstrated
that the scheme was conceived in the interests and enured to
the benefit of the Company as a whole and was a scheme to
which, if its terms were fair to each class affected, the directors
were entitled to call for the support of all classes of share-
holders. And in viewing the position of the deferred

(1) 40 Ch. D. 363.

A. C. AND PRIVY COUNCIL.

shareholders on the footing that their strict legal rights under
the articles had been superseded, I did not consider that in the
circumstances any bargaining advantage they might originally
have possessed by reason of the fact that their separate consent
to any reduction was, in effect, essential, ought now to be taken
into account. They had lost in this last phase any initial
advantage of that type. Accordingly, as I thought, the
reduction might in the result be held to be fair to them, if
interpreting the scheme in its business sense the ordinary share
which under it they were to receive in exchange had been shown
to be the fair equivalent of every four of their unreduced
deferred shares. On this aspect of the case I did feel the
difficulty that in fixing that proportion no allowance appeared
to have been made for the advantage already referred to which
accrued to the old ordinary shareholders from the transfer to
capital reserve of the 5,434,141/. theretofore credited to the
deferred shares alone. But on consideration it appeared to
me that this item, large as it was, ought not finally to weigh
in the balance against the positive, independent, and highly
instructed opinions of Sir Albert Wyon and Sir William
McLintock that the scheme was in their judgment entirely
fair to the deferred shareholders. I did not ignore other
circumstances leading to the same result. But their testi-
mony, entirely disinterested, I felt I might properly accept.
Accordingly, and subject only to the question whether the
extraordinary resolutions at the class meetings had been duly
passed at separate meetings properly so described I reached
the conclusion that the reduction might properly be confirmed
by this House.

That question, so reserved, raised however a very serious
issue of wide general importance. I cannot myself accept the
view so far judicially taken of the procedure here followed on
May I, 1935. It would, I think, be unfortunate indeed if the
procedure then adopted were to go forth approved by this
House as procedure to be followed or adopted under similar
circumstances in future. Eve J. has said of the three last
meetings of May 1, 1935, that they were organized with
remarkable skill. And as an arrangement designed to consult

751

H. L. (E,)
1937

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
ILD,

Lord
Blanesburgh.

752

HOUSE OF LORDS [1937]

H.L. (E.) to the utmost the convenience of the shareholders likely to

1937
—

CAR

RUTH
VU

IMPERIAL
CHEMICAL

INDUSTRIES,

Abin:

Lord

Blane

or
sburgh,

attend, I agree. But the price paid at the end of the day, in
my judgment, was that anything valuable and distinctive in
a separate class meeting—and there were two of these—was
thereby sacrificed.

My Lords, had the order of procedure foreshadowed in the
notices convening the meetings been in any true sense
realized, no objection technical or substantial would have now
been competent. The form of notice seemed to presuppose
that there had to be three specific meetings—the first an
extraordinary general meeting consisting of all shareholders
in the Company—preference, ordinary and deferred—at which
the scheme in all its details, as affecting the Company generally,
would be submitted for approval by special resolution; the
second a meeting of the ordinary shareholders only at which
the scheme as affecting their particular class interests would
be submitted to them separately for approval by extra-
ordinary resolution; and the third, a corresponding meeting
of deferred shareholders only, similarly convened to approve
of the scheme as specially affecting their class interests in
the sense already discussed. These meetings were convened
for 10.45 A.M., II A.M. and I1.I5 A.M. respectively, or so soon
thereafter as the immediately preceding meeting should be
concluded. But on the day itself no attempt was made to
separate the shareholders alone entitled to be present at
either class meeting from the whole body of shareholders
summoned for, entitled to be present at, and to take part in,
the general meeting. These did so assemble at the appointed
hour of 10.45 A.M. to the number of about 1600, and after the
show of hands on the resolutions and a poll demanded in writing
by the chairman to be taken immediately, they were informed
that their voting papers on the poll would be collected at the
doors after the close of the final, the deferred shareholders',
meeting. In other words all present were invited to remain
seated as they were until the business of the last of the meetings,
which only a fraction of the assembly was entitled to attend, had
concluded. This invitation, taken in connection with an
announcement at the commencement made by the chairman

A. C. AND PRIVY COUNCIL.

before beginning his speech, was an intimation that the period
of waiting would not be prolonged. Doubtless, therefore,
very few of those present left before the end.

The announcement referred to was the death-knell of a
separate meeting in any deliberative sense. After stating
that the general meeting would be followed by the class
meetings to each of which an extraordinary resolution would
be submitted, the chairman proceeded: 'I propose, with
your approval, to make one speech in relation to these
three meetings, and therefore to take the vote at the
two subsequent class meetings of the ordinary shareholders
and the deferred shareholders respectively without any further
speeches."

And everything followed according to that plan. No
speeches except at the general meeting were made by anybody.
An unsuccessful attempt was made by a deferred shareholder
to speak after the deferred extraordinary resolution had been
read out by the chairman to the so-called deferred separate
meeting, but, as described by Clauson J., the attempt was made
" with so little insistence that it cannot be treated as affecting in
any degree the regularity of the chairman proceeding to put
the resolution to the vote.'' At the general meeting a confused
discussion followed the chairman's speech, during which in
illogical sequence the issues suitable for discussion by the
shareholders generally, as well as those more or less appro-
priate to the ordinary and deferred shareholders separately,
were ventilated by individual shareholders. And _ then
discussion ceased and it was never again renewed. The
proceedings at each separate meeting (if such it can be called,
with the whole general body of shareholders remaining in
their places) consisted in the chairman reading the extra-
ordinary resolution, then calling for a show of hands, and
thereupon, whether the result was for or against the
resolution, demanding a poll to be taken at once. And that
was all.

Now, my Lords, in the above circumstances I ask myself
when did either separate class meeting commence? The
business. of each meeting certainly commenced with the

753

H. L. (E,)
1937

CARRUTH
v,
IMPERIAL
CHEMICAL

INDUSTRIES,

ip:

Lord
Blanesburgh.

754 HOUSE OF LORDS (1987)

H.L. (E.) chairman's speech to the general meeting. He said so. But if

1937. ~+the class meetings then commenced they did so before the time
Carnutn for which either was convened, probably two hours before. It
Iuprera Must also on that view be taken that there were one general
CuEMicaL and two separate meetings proceeding simultaneously under

te one chairman. If, however, the separate meeting, say of the

ia deferred shareholders, did not commence until after the pro-

PlanesPuré>- ceedings of the ordinary shareholders' meeting had concluded—

and this is the view of the Company—then it was a meeting

at which nothing in fact took place and nothing was intended

or arranged to take place except that the resolution should be

read, a show of hands asked for, with neither explanation

given nor discussion invited, and then a poll demanded to be

taken at once. The separate meeting on this hypothesis con-

sisted in a resolution read, a show of hands asked for, and a poil

demanded. Is this the position to which a deferred shareholder

attending that meeting at the appointed time, and not earlier,

may properly be relegated ? That must be the contention.

But when it is remembered that all this took place in the

presence of the great bulk of the shareholders of all classes

originally assembled, it seems to me impossible to hold that

any meeting on that day was a separate class meeting in any

sense of those words not wholly inappropriate. A far more

accurate description of the relevant proceedings of the day

regarded objectively would be that they consisted of one

general meeting and two separate polls. Let it be agreed

that the result of each of the two separate polls was accurate

in every particular; still it is a separate meeting and not

a separate poll that is required by this Company's memorandum

of association. And there is a wealth of meaning in the
distinction.

But nevertheless it is, doubtless, because of the accuracy of
the result of the polls—the final deliverance—that the pro-
cedure adopted is in its result sought to be justified. And it is
at this very point, as it seems to me, that one material defect
in the procedure is disclosed. For if I must condescend upon the
question, what essential condition of a separate meeting was on
this occasion broken, I would say that one such breach consisted

A. C. AND PRIVY COUNCIL.

in this, that the meeting was so held that there could not be a
reliable show of hands—an essential preliminary basis for all
subsequent procedure including the demand for and the taking
of the poll. It is true that the chairman at the deferred meeting
said that only deferred shareholders were to hold up their
hands. No one, however, can say, the chairman, perhaps,
least of all, whether all of the shareholders present not being
deferred shareholders were obedient to his command. It is
said both by the learned judge and by Clauson J. that no
wrong voting is shown and doubtless there was none so far
as the poll is concerned. But it would need an indefinite
number of affidavits, many hundreds, I presume, to establish
the same negative fact in relation to the show of hands. It
has not been shown that there was then any wrong voting.
No more than that can be said, and that is not, I suggest,
enough. A show of hands is the constitutional method of declar-
ing the will of a meeting. It stands as the resolution of the
meeting, unless the declaration of the chairman that the pro-
posed resolution is thereby carried or lost is subsequently
displaced by the result of a poll thereafter duly demanded and
taken. But from the very nature of the case there can,
I suggest, be no valid demand for a poll unless there has
been a valid show of hands. And that there was a valid
show of hands at this so-called separate meeting it is impossible
to affirm. The explanation of all that happened in this respect
on May 1, 1935, is doubtless that the show of hands in view
of the chairman's intention to demand a poll, whatever its
result, was regarded as an empty ceremony of no significance,
whereas it did remain the common law expression of the
meeting's will, and had to be respected accordingly.

Clauson J. in his judgment asks whether, if it met together,
the meeting of the deferred shareholders was not a good
separate meeting of the class '"' merely because," as he
puts it, "some strangers to whose presence nobody, in
fact, objects, are within the same four walls." The same
question might be asked and presumably would receive the
same negative answer in relation to the meeting of the ordinary
shareholders.

755

el, 1Bs (825)
1937
——
CARRUTH
v.
IMPERIAL
CHEMICAL

INDUSTRIES,
Lp.

Lord
Blanesburgh.

756 HOUSE OF LORDS [1987]

H.L.(E.) My Lords, with all respect I cannot recognize in the question

1937 an adequate description of the situation. And the danger
Carrutn of accepting the test as applicable to what really happened
Iupnera, 1S, that by that acceptance, every element of value in a class
CuEMICcAL meeting is lost. The opportunity afforded to the class of

ae re discussing their own affairs undisturbed by opposing or
Lora -CONflicting interests is the modest protection against possible
Blanesuré! oppression offered by a class meeting. How weak that pro-
tection often is, owing to conflicting interests within the class
itself, is only too well known and is illustrated perhaps in this
case. But the protection is worth preserving faute de mieux.
I can only hope with my noble and learned friend that the
result of this case will be that the procedure adopted in this
instance will not be, in like circumstances, repeated. My own
opinion, however, was that the deferred shareholders' meeting
—it alone happens to be attacked—was not a separate meeting
within the meaning of this Company's memorandum of
association and that apart from waiver, it could not be so
regarded. Your Lordships, I believe, support the resolution
then passed because you find in the proceedings of the meeting
as proved sufficient evidence that every non-compliance with
essential conditions was duly waived by those deferred share-
holders who were present. I cannot myself read all that into
the evidence, but mainly because of my fear that the
acceptance of the evidence to that effect, such as it was,
might be invoked in other cases to justify even further
departure from essential conditions, I preferred to support
the resolutions on another ground now to be stated, which is

not open to this risk.

On this petition both the extraordinary resolutions which
are said to have been passed on May I, 1935, must, I think,
be taken to have been duly passed, for the simple reason that the
regularity of the meetings at which they were so passed is
not, on this petition, as it is in the reduction resolution, directly
in issue, and because no steps have been taken nor any
threatened to question their regularity either by application
under s. 61 of the Act, now too late, or by action properly
constituted for that purpose. In the absence of any such

A. C. AND PRIVY COUNCIL.

proceedings the evidence filed proving the passing of the extra-
ordinary resolutions must, I think, on this petition, be accepted
as enough. It is sufficient to establish the presently relevant
fact—namely, that there will be provided for the deferred
shareholders everything that under the scheme they are 'to
receive in return for their reduced share capital. It must
therefore, I think, be concluded that the extraordinary resolu-
tion of the deferred shareholders is on this petition entitled to
full effect according to its true meaning, and I have dealt with
it above on that footing.

In the view which I have taken of this case generally I need
hardly say that with the order made by the House as to the costs
of the appeal I was in complete agreement. Had the case
presented itself to the learned judge as it was presented here
I cannot doubt that he would have allowed one set of costs
to the dissentient deferred shareholders appearing before him,
and it may even be that the Court of Appeal, had they found
it necessary to call upon the respondent Company, might even
have varied his order as to costs, especially if it had been brought
to their attention that the deferred shareholders were at the
meeting almost invited by the president of the Company and the
chairman to place their views before the Court at the hearing
of the petition which was then foreshadowed. It would,
however, be out of the question that this House, dismissing
the appeal, should interfere with an order as to costs that
had been the subject of a double discretion. Nor could the
House well order a successful respondent on a second appeal
to pay the appellant's costs of that appeal. But the respondent
Company's own costs of the appeal were within your Lord-
ships' normal discretion and it was well, and to some extent
a recognition of the service rendered by the appellant, that
the Company should be left to bear its own costs of an appeal
in which the appellant has been of real assistance to the
House.

My Lords, as I was examining the statute of 1929 for the
purposes of this opinion, I chanced upon a matter of real
importance to all concerned in these matters, which was
perhaps overlooked in this case. The question in no

7357

Hit E(B)
1937
pte
CARRUTH
v.
IMPERIAL
CHEMICAL

INDUSTRIES,
Lp.

Lord
Blanesburgh.

758

H. L. (E.)
1937
——

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
pt

Lord
Blanesburgh.

HOUSE OF LORDS [1937]

way affects the appeal, because it was neither raised nor
argued by the appellant. I raise it, only, in the general
interest.

Reading in the record the account of the extraordinary
general meeting of the Company on May 1, 1935, I noticed
that the chairman, on the failure of the special resolution
to be carried on a show of hands, is reported to have
said :, (Record p. 263.) "I... . give written notice in
pursuance of article 59 of the Company's articles of association
that I demand a poll and I direct in pursuance of
article 60 that the poll shall be taken forthwith."" And
the allegation on this subject in para. 18 of the reduction
petition is to the same effect. Now I am not suggesting
that that demand was irregular. It has not been challenged,
and I am not suggesting that its sufficiency could not have
been established, if it had been. But the form of demand indi-
cates that an important change in the law on this subject,
introduced by the Companies Act, 1928, and brought into
force by the Companies Act, 1929, may not yet be fully appre-
ciated by the profession, and I draw attention to the change
by way of warning to all concerned in the administration of
Companies. Since the passing of that Act the procedure
governing the demand of a poll when at any meeting an extra-
ordinary or a special resolution as defined by the Act itself
has on a show of hands been carried or lost has become
statutory, and except to the extent referred to in the Act, is
no longer as before governed exclusively by the articles of
association of the Company concerned.

Sect. 117 of the Act of 1929 contains the provisions as to
extraordinary and special resolutions which, like the special
reduction resolution here, are statutory. Sub-s. 4 is as
follows :—

" At any meeting at which an extraordinary resolution or
a special resolution is submitted to be passed a poll shall be
taken to be effectively demanded if demanded

(a) by such number of members for the time being entitled
under the articles to vote at the meeting as may be specified
in the articles so, however, that it shall not in any case be

A. ¢. AND PRIVY COUNCIL.

necessary for more than five members to make the demand ;
or

(0) if no provision is made by the articles with respect
to the right to demand the poll, by three members so
entitled or by one member or two members so entitled if
that member holds, or those two members together hold
not less than 15 per cent. of the paid-up share capital of
the Company."'

The provisions of the sub-section are, it will be seen, not
crystal clear. But under it the chairman of a meeting has no
special privilege as such. If he is not a member—and in the
respondent Company the chairman need not necessarily be a
member—see Art. 82—he has in this matter under the sub-
section no status at all. It may therefore be asked, is the
provision made by the articles and referred to in sub-s. 4 (8)
confined or not to a provision with respect to the right of
members to demand a poll? Again it may be one day an
interesting subject of discussion, whether, if the articles so
provide, a single member, holding say one share, may demand
a poll under sub-s. 4 (a), or whether, if not, he may notwith-
standing sub-s. 4 (b) do so on the ground that the case is not
one in which "no provision is made by the articles.'' All of
which indicates how dangerous it may be to ignore these
statutory provisions. If regard be had only to the articles
there may always be a risk that the result of the poll irregularly
demanded will, if challenged, be held to be otiose. The
Act I would add deals only with extraordinary or special
resolutions which are statutory. It does not, unless
incorporated in articles by reference, apply to conventional
extraordinary resolutions such as were here referred to in
Art. 72.

Lorp RUSSELL OF KILLOWEN. My Lords, having had the
opportunity of reading and considering the opinion of my
noble and learned friend Lord Maugham (with which I agree)
I feel justified not only in dispensing with any recital of the
relevant facts (of these I will assume the House to be fully

759

BAL (ES
1937

ed
CARRUTH

v.

IMPERIAL

CHEMICAL

NDUSTRIES,
Lp.

Lord
Blanesburgh.

760

HeLa)
1937
CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
[ep

Lord Russell
of Isillowen.

HOUSE OF LORDS [1937]

seised), but also while making some additional observations of
my own, in confining them within narrow limits.

The question which has given me the chief anxiety in this
case is the question whether a separate meeting of the deferred
shareholders, within the meaning of those words, was held.
That the meeting was validly convened there can in my
opinion be no doubt. The only suggestion to the contrary
contained in the appellant's case is that a shareholder who
held deferred shares, but no ordinary shares, would have no
knowledge of the hour for which the class meeting of the
ordinary shareholders had been summoned. For myself, I
never could, nor can I now, appreciate this point, in view of
the fact that the meeting of the deferred shareholders was
summoned for a specified hour, though with an intimation
that the actual commencement of the meeting would, if need
be, await the conclusion of the meeting of the ordinary
shareholders.

A further point was raised for the first time in this House,
to the effect that the notice convening the meeting was an
insufficient notice, because neither it, nor the resolution set
out therein, referred to or covered a "' reduction of the
Company's capital affecting the class of shares in a manner
not otherwise authorized by these articles.'"' The relevant
words are quoted from the 7Ist article of association. I will
assume in his favour that it was open to the appellant in a
case like this to raise such a point for the first time here,
though I doubt whether it was ; but there is, in my opinion,
nothing in the point. The notice in question embodies the
series of resolutions appended to the notice concerning the
extraordinary general meeting, and these make quite plain
the nature of the reduction which was proposed, and which
was merely incidental to the main purpose—namely, the
rearrangement of capital by the conversion of deferred shares
into ordinary shares, one ordinary share of 1/. being substituted
for four deferred shares of Ios. each.

The meeting having been properly convened, can it be said
that the circumstances attending its holding were such as to
invalidate its acts, or in other words, such as to justify us in

A. 6. AND PRIVY COUNCIL.

holding that there was no resolution of the deferred share-
holders? I have come to the conclusion that the answer
should be in the negative. There are many matters relating
to the conduct of a meeting which lie entirely in the hands of
those persons who are present and constitute the meeting.
Thus it rests with the meeting to decide whether notices,
resolutions, minutes, accounts, and such like shall be read to
the meeting or be taken as read ; whether representatives of
the Press, or any other persons not qualified to be summoned
to the meeting, shall be permitted to be present, or if present
shall be permitted to remain; whether and when discussion
shall be terminated and a vote taken; whether the meeting
shall be adjourned. In all these matters, and they are only
instances, the meeting decides, and if necessary a vote must
be taken to ascertain the wishes of the majority. Ifno objection
is taken by any constituent of the meeting, the meeting must
be taken to be assenting to the course adopted. It is not a
case, as was suggested in argument, of those present at a meeting
waiving rights of those who have elected not to attend ; it is
a case of those who have elected to attend regulating the
conduct of the meeting, a question in which those who have
chosen to stay away have no voice. I am, however, far from
assenting to the view that all that is necessary to constitute a
valid resolution by a separate class of shareholders, or a valid
separate meeting of a class of shareholders, is that a separate
vote of the class be taken in such circumstances as to ensure that
all members of the class shall have an opportunity of voting,
and that no one who is not a member of the class shall vote.
Prima facie a separate meeting of a class should be a meeting
attended only by members of the class, in order that the
discussion of the matters which the meeting has to consider
may be carried on unhampered by the presence of others who
are not interested to view those matters from the same angle
as that of the class; and if the presence of outsiders was
retained in spite of the ascertained wish of the constituents of
the meeting for their exclusion, it would not, I think, be
possible to say that a separate meeting of the class had
been duly held. In the present case, however, the deferred
ADC. 1937: 8 3D

761

H. L. (E,)
1937

——_
CARRUTH
Uv.
IMPERIAL
CHEMICAL
INDUSTRIES,
LD:

Lord Russell
of Killowen.

762 HOUSE OF LORDS [1937]

H.L. (E.) shareholders present, with knowledge that many werein theroom

1937 who held no deferred shares, and that it was proposed that no
Carruta further discussion should take place, but that a vote on the
Iupeatar resolution should be taken, raised no objection, or at all events
CuEMicaL no audible objection, of any kind. In these circumstances

aie sa they must be taken to have assented to the meeting being so

Lord Russell Conducted, and the resolution was accordingly a valid extra-

of Kitowen: ordinary resolution passed at a meeting of the deferred share-
holders within the meaning of the 71st article of association.
I would like to add that in my opinion the question of
convenience or inconvenience should not enter into considera-
tion. Those responsible for convening a series of class meetings
may find it the more prudent course to summon such meetings
at longer intervals or in different rooms, or even on different
dates. The inconvenience and extra expense involved are an
unfortunate result of the modern phenomenon of colossal
companies with phalanxes of shareholders.

As regards the contention of the appellants that there was
no power in the Company to reduce its capital except by
paying off what was termed in argument " redundant capital,"
and that the reduction here proposed was therefore ultra vires,
I need only say that I agree with the views of Eve J. and the
Court of Appeal—namely, that upon the true construction of
the 44th article of association the Company had power to
reduce its capital in any way authorized by the Companies
Act, 1929.

The appellants, however, contended that the Court should
not have confirmed the reduction of capital, because the
circular issued by the directors to the shareholders was, by
reason both of what it contained and what it omitted, of such
a nature that the holders of deferred shares were not placed
in a position which enabled them properly to judge and vote
upon the board's proposals. It must be borne in mind that
throughout these proceedings, the objecting shareholders have
emphatically, even ostentatiously, disclaimed any hint or
suggestion against the integrity or good faith of the directors.
Nor has any holder of deferred shares come forward to say
that he was in any degree wrongly influenced or misled by the

A. C. AND PRIVY COUNCIL.

circular. Having carefully considered the various matters in
respect of which the circular was criticized before this House,
I have no hesitation in agreeing with the views of Eve J. and
the Court of Appeal—namely, that no refusal to confirm the
reduction resolution could properly be based upon criticism
of the circular.

In the final resort it was urged by the appellants that the
reduction of capital should not be confirmed because the
scheme for the rearrangement of the Company's capital (in
which, be it observed, the reduction was only an incident)
operated unfairly to the holders of deferred shares.

The Court of Appeal disposed of this contention by saying
that the question whether it was to the advantage of a class
to accept a particular modification of their rights was
eminently a question of which the shareholders were much
better judges than the Court; and that nothing had been
placed before the Court which would justify an overruling of
the shareholders' decision. I would rather put the matter
thus, in view of the large number of votes in favour of the
scheme given, at the meeting of deferred shareholders, by
persons who also held ordinary shares—that in the present
case the Court should itself decide the question upon the
evidence before it, and that judging the question of fairness
or unfairness upon the evidence in the case, both affidavit
evidence and oral evidence, I am satisfied (no matter where
the onus originally lay) that the scheme for rearrangement
of the Company's capital is one which is fair to both classes,
both the holders of deferred shares and the holders of ordinary
shares.

In the result I agree that the appeal was rightly dis-
missed, and in the special circumstances of the case, without
costs.

I desire to keep open the question whether it is competent
for an individual shareholder to appeal on behalf of others
as well as himself, and to represent them on the hearing of
the appeal; or whether it is not necessary that any one who
wishes to be represented on the hearing of an appeal and to
be heard in support thereof, should be joined as an active

3 s 1D) 2

763

lek il, (022)
1937
—_—
CARRUTH
v.
IMPERIAL
CHEMICAL

INDUSTRIES,
Lp.

Lord Russell
of Killowen.

764

Hela.)
1937
——
CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

HOUSE OF LORDS [1937]

appellant, with all the risk of liability which attaches to such
an activity.

Lorp MauGcuam. My Lords, this is an appeal by the
appellants from an order of the Court of Appeal (Lord
Wright M.R., Romer L.J. and Clauson J.) unanimously
affirming an order of Eve J., dated November 13, 1935, and
made on a petition presented by the respondent Company,
Imperial Chemical Industries, Ld. (whom I shall call " the
Company ''), to the Chancery Division of the High Court of
Justice, confirming a reduction of the capital of the Company
from 95,000,000/. to 89,565,859/. The case for the appellants
is that the petition should have been dismissed and that the
judgments of the learned judge and of the Court of Appeal
should be reversed. [His Lordship stated the facts as above
set out and continued :]

My Lords, I have thought it necessary to state the facts in
some detail because the questions which arise on the appeal
are not without some novelty and difficulty. On the one
hand the reduction of capital which the Court was asked to
confirm was one of those very unusual reductions in which
no paid up share capital had been lost or was unrepresented
by available assets and no paid up share capital was being
paid off as being in excess of the wants of the Company.
On the other hand the class meetings of the holders of ordinary
and of deferred shares respectively were not separate meetings
in the usual meaning of the word " separate,' but meetings
of all the shareholders together at which the votes of the
holders of the two classes were separately counted. The course
taken as regards these meetings was one which required
careful consideration ; such a course appears never to have
had the approval of the Court on any previous occasion. It
should also be observed that the extraordinary resolutions
purporting to modify the rights of the holders of the ordinary
and deferred shares respectively, based as they were on
Arts. 71 and 72 of the articles of association, did not require
the approval or confirmation of the Court. Their validity
might have been challenged by an application under s. 61

A. C. AND PRIVY COUNCIL. 765

of the Companies Act, 1929. That section, however, requires H. L. (E.)
the application to be made within seven days after the date 1937

of the resolution and to be supported by not less than 15 per Carrutu
cent. of the issued shares of the class concerned—conditions j,peprat
with which it is often impossible to comply. In the absence eee
of such an application, shareholders who wish to attack such Test aren
a resolution may no doubt commence an action for the tora Maugham.
purpose. On an application under the section, the minority
shareholders have to satisfy the Court that the variation of
rights "' would unfairly prejudice the shareholders of the class
represented by the applicant." It would seem that if an
action is brought the plaintiffs would have to prove at least
that the majority have unfairly oppressed the minority. It
may be that the onus and the evidence in support in the
two cases would not be very different. When however, as in
the present case, neither course has been taken, it is difficult
to see how the validity of the resolutions (if duly passed) can
be disputed ; for the shareholder's vote is a right of property,
and prima facie may be exercised by a shareholder as. he
thinks fit in his own interest. However, the appellant was
permitted to challenge the validity of the resolutions altering
rights on the petition for reduction of capital. There were,
no doubt, strong reasons of convenience in allowing that to
be done; and in the circumstances I am content to accept
that course as being a regular one. It must, however, be
borne in mind that the appellant is in a different position in
attacking the extraordinary resolution altering the rights of
the deferred shares from his position as appearing to oppose
a petition to confirm the reduction of capital. It was part
of the bargain under which he held his deferred shares that
their rights might lawfully be altered under Art. 71, and if
the extraordinary resolution above set forth was passed by
the requisite majority, and he could not establish that the
resolution involved an oppression of the minority (see Cook v.
Deeks (1) and cases there cited), the Court would have no
power to interfere. On the other hand on the application
under s. 55 of the Act to confirm the reduction, the Court,

(1) [1916] 1 A. C. 554.

766

H. L. (E.)
1937
——

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
IED:

Lord Maugham.

HOUSE OF LORDS [1937]

whether or not the petition is opposed, has a duty to consider
whether the proposed reduction is a fair or an unfair one.

Three main points were urged on behalf of the appellant.
First it was contended that the reduction of capital was
ultra vires the Company, since Art. 44 did not empower the
Company to reduce its capital by cancelling the five and a
half million of deferred share capital merely for the purpose
of a reorganization of capital. This argument involved a
strangely limited meaning being given to the words "or
otherwise as may seem expedient" in the article. I agree
with Eve J. and the Court of Appeal in thinking that the
Company by Art. 44 took power to reduce its capital in any
way authorized by the Companies Act, 1929. Ever since
the decision of this House in Poole v. National Bank of China (1)
it has been clear that such a reduction as the one proposed
was not unlawful (apart from the question of fairness), and
the language of s. 55 of the Act of 1929 recognizes the
correctness of that decision.

The second objection is as to the class meetings. Art. 71
requires the assent of the shareholders of each class by an
extraordinary resolution, passed at a meeting of such class.
Such a meeting is referred to in clause 6 of the memorandum
as "'a separate meeting of the holders of shares of the class."'
It was contended on behalf of the appellant that, in the
circumstances above detailed, there was no separate meeting
of the holders of the deferred shares, nor was there a separate
meeting of the holders of the ordinary shares; and if that
contention were held correct the whole scheme would become
inoperative. I will say at once that on this point I cannot
view the matter from exactly the same angle as the Court of
Appeal. The argument from convenience is not a strong one
in a case where the rights of persons may be altered to their
prejudice if certain definite things are done. In such a case
the doing of the things generally speaking is a condition
upon the performance of which the rights may be altered.
The question therefore is whether there were in fact separate
meetings of the two classes. According to the ordinary

(1) [1907] A. C. 229.

A. @. AND PRIVY COUNCIL. 767

notions of commercial men and investors a meeting (to take H. L. (E.)
that case) of deferred shareholders in a hall where there are _1937
an equal or greater number of holders of ordinary shares Carrutu
would not be described as a separate meeting of deferred s

IMPERIAL
shareholders, even if the ordinary shareholders were told by _C#Emrcat

the chairman that they must neither speak nor vote. It is a is
not difficult to imagine a case where the presence of a number tora Maugham.
of persons with conflicting interests would render it impossible
for members of the class adequately to discuss the matter
from their point of view. Meetings of members of companies
are not always conducted in an orderly fashion. There is often
a hubbub of sound which drowns a speech which might
otherwise have a great effect. Members of another class by
merely indulging in coughs or groans or neighbourly con-
versation might seriously prejudice speakers who were
supporting a view which did not commend itself to that class.
Other objections will readily occur to any one who kriows
how meetings of this kind are frequently conducted. In my
opinion the better and the wiser course is to make provision
for the holding of truly separate meetings in the ordinary
way, even at the risk of some inconvenience. It does not,
however, follow in the circumstances of this case that the
extraordinary resolutions were void. It is necessary in the
first place to distinguish between the summoning of a meeting
and its conduct when the shareholders meet. In the present
case I can see no ground for the suggestion that separate
meetings of the ordinary and deferred shareholders were not
duly summoned. As regards the conduct of such a meeting
that is a matter largely in the hands of the chairman with the
assent of the persons properly present. Just as documents
which have to be presented to a meeting can be taken as
read, and just as a meeting can decide either that an untiring
speaker shall be no longer heard, or that a much debated
question shall be put to the vote without further discussion,
so in my opinion the holders of deferred shares were entitled
to waive the objection to the presence of strangers, including
holders of ordinary shares, and if they chose to do so it would
not, I think, be open to any one to assert that the meeting

768

H. L. (E.)
1937
ee

CARRUTH
Uv.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord Maugham.

HOUSE OF LORDS [1937]

was not being properly held within the meaning of Art. 71.
To this the important fact should be added that the chairman
was in a position to demand a poll, that he had already
determined to do so, and that he held sufficient proxies to
carry the resolution. In such a case the speeches and the
voting on a show of hands become little more than formalities ;
all that is necessary is that there should be a class meeting
duly constituted at which a poll can properly be demanded.
The conclusion at which I arrive is that in the circumstances
the meeting of deferred shareholders was properly convened,
that the objection which might have been raised to the
presence of holders of shares of another class was waived,
that the poll was duly demanded and that the extraordinary
resolution was passed by the requisite majority. It might
have been better if the chairman had told the holders of
deferred shares that the matter of the exclusion of others
rested with them and if he had invited an expression of their
views ; but in the circumstances and in the absence of any
audible protest I think he was justified in taking their assent
for granted.

The third point taken was that the Court ought not to have
confirmed the reduction having regard to the contents of and
the omissions from the circular issued by the directors, and
the unfairness of the scheme as a whole to the holders of
deferred shares. As regards the circular I entirely agree with
the way in which Clauson J. in delivering the judgment of
the Court of Appeal has dealt with this point and I need not
repeat what he said. It is indeed difficult to see that the
criticism of the circular can have any real weight when it is
remembered, first, that counsel for the appellant has with
equal candour and fairness explained in each tribunal that
he was making no attack whatever on the directors and was
admitting their complete good faith and, secondly, that no
single holder of deferred shares has come forward to state on
affidavit that he had been in the least misled by the circular.
For my part I think the directors were well advised in not
adding to the voluminous documents which the secretary
sent to the shareholders on April 6, 1935. The salient and

A. C. AND PRIVY COUNCIL. 769

most important of the facts necessary to enable a deferred H.L. (E)
shareholder to form a judgment on the scheme were in my 1937
view stated clearly and fairly in the circular. CarRuTH
The question as to the fairness of the reduction coupled hase
with the scheme as a whole is not I think quite so easy to C#Emicat

deal with for the following reason. Both Eve J. and the eee pa
Court of Appeal seem to have laid considerable stress on the Coniadeuetas
well known proposition, laid down in English, Scottish and
Australian Chartered Bank, In re (1) and often followed, that
shareholders acting honestly are usually much better judges
of what is to their commercial advantage than the Court
can be. I do not intend to throw the smallest doubt on this
general proposition, which I have had occasion more than
once to repeat, but I doubt very much whether it is of great
value as a guide when it is proved that the majority of the
class have voted or may have voted in the way they did
because of their interests as shareholders of another class.
If the Court is satisfied that the deferred shareholders in
this case " considered the matter from a proper point of view,
that is, with a view to the interests of the class to which they
belong and are empowered to bind, the Court ought to be
slow to differ from them." (I am here citing from the judgment
of Lindley L.J. in the case cited and from the same page.)
But it is strongly argued for the appellant that an analysis
of the figures as to voting shows that so many persons, holders
of deferred shares and of no ordinary shares, were opposed
to the scheme that an inference should be drawn that the
majority in favour of the scheme could not have considered
the matter with a view to the interests of holders of deferred
shares only. There is weight in this contention and I have
thought it necessary to pay little attention to the majority
on the poll in favour of the scheme in considering whether
it is a fair one.

In the first place I will repeat that the onus is on those
who say the scheme, so far as alteration of rights is
concerned, is unfair; the deferred shareholders have con-
sented to it under Art. 71, and those who contend that

(1) [7893] 3 Ch. 385, 409.

77°

Hal, (E)
1937

<a
CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Lp.

Lord Maugham,

HOUSE OF LORDS [1937]

the interests of the minority are being unfairly overriden
by persons with other and conflicting interest, must prove it.
A passage from Buckley on the Companies Acts (11th ed., p. 121)
is no doubt a correct statement: "' Where the memorandum
or articles contain a clause empowering a specified majority
of the holders of any class of shares to sanction modifications
of the rights of the shares of that class, any scheme for
reduction which is sanctioned in accordance with such clause
by the classes affected thereby is prima facie a reduction
in accordance with the legal rights of the shareholders."
I will add that the cancellation of the five and a half millions
of deferred share capital seems to me to be part of the bargain
approved by the deferred shareholders under Art. 71, and
is not, I think, a subject for separate consideration.

Secondly, I think the fairness or unfairness of the scheme
as a whole, including the reduction, is not a matter for the
discretion of the learned judge in a technical sense, but is a
matter to be decided on the evidence. The question in this
case depends on the view which should be taken as to the
future commercial success of the Company. We are not
entitled to substitute our own views for those of the directors
and experts who have given evidence. Considerable importance
should be attached to the unanimous opinion of the directors
whose good faith I repeat is not in question, and having
regard to their standing and position I think little weight can
be given to the circumstance that their combined holdings
are predominantly in ordinary shares. I am also impressed
by the fairness and candour with which the experts called
on behalf of the Company gave their evidence.

Thirdly, it is important to note the nature of the question
which arose. As Clauson J. observed: '' The matter for
consideration is a comparison of two types of shares, first a
share which carries with it no revenue until the amount to
be distributed in dividend passes a certain definite point, and
when that point is passed, carries by way of revenue a rapidly
increasing proportion (relative to paid up capital) of the fund
divided, and second a share which carries revenue up to the
definite point without competition from any other class

A. C. AND PRIVY COUNCIL.

and from that point carries by way of revenue a rapidly
diminishing proportion (relative to paid up capital) of the
fund divided. The comparison is made in order to fix a rate
at which the share of more speculative character is to be
exchanged for a share of the less speculative character.
Whether an individual holder of an ordinary or a deferred
share approves the rate suggested will depend on the estimate
which he forms of the relative prospects of the two classes
of share, in view of the particular circumstances of the
Company's business."'

The question then for us is whether upon the evidence we
ought to come to the conclusion that the future of the Com-
pany, dependent as it is on a hundred contingencies and
chances, is such that deferred shareholders are being unfairly
treated for the benefit of ordinary shareholders in that the
terms on which the deferred shares are to be converted into
ordinary shares ought to be more favourable to the former
than on the basis of four deferred shares for each ordinary
share. I have anxiously considered the whole of the evidence
that was put before us on this point, considering it
altogether apart from the actual result of the poll, and I am
quite unable to come to any such conclusion. I see no unfair-
ness in the terms of proposed conversion; certainly none
has been established on the evidence. This point therefore
also fails.

As regards costs it may be pointed out that not only is
this a case where very large sums are involved but it is also
one as I have already said where there are questions of
novelty and of some difficulty. A judge hearing such a
petition under s. 55 of the Companies Act, 1929, is generally
not unwilling to have the objections to it argued by experienced
counsel, and to allow the opponents their costs. The learned
judge, however, thought fit to take the stricter course. We
could not interfere with his discretion, but in all the circum-
stances I readily agreed with the course which commended
itself to your Lordships, namely to dismiss the appeal without
costs.

772

H. L. (E.)
1937
——

CARRUTH
v.
IMPERIAL
CHEMICAL
INDUSTRIES,
Ep:

Lord Maugham.

792 HOUSE OF LORDS [1937]

H. L. (E.) Ordered and adjudged that the order of the Court
1937 of Appeal complained of be affirmed and the

CARRUTH appeal dismissed ; and further ordered that

ane there be no costs of the appeal to this House.

pe tered Lords' Journals, Nov. 13, 1936.
Lp.