Scottish Court of Session Decisions

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69) enacts—Section 9—“(1) Subject to the provisions of this section a company may by special resolution alter the provisions of its memorandum with respect to the objects of the company, so far as may be required to enable it—( a) To carry on its business more economically or more efficiently; or ( b) to attain its main purpose by new or improved means; or ( c) to enlarge or change the local area of its operations; or ( d) to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company; or ( e) to restrict or abandon any of the objects specified in the memorandum.”

The North of Scotland and Orkney and Shetland Steam Navigation Company, Limited, petitioners, presented a petition for confirmation of alteration of constitution and extension of objects. At an earlier stage of the case (see supra, p. 117) the Court had continued the petition to have matters of procedure therein put right.

The objects of the petitioners as set forth in the proposed memorandum of association were—“( a) To establish and maintain lines of steam or other ships between the ports of Leith, Aberdeen, Wick, Kirkwall, Lerwick, and any other ports, or between any other ports in any part of the world, and also air-ships, aeroplanes, seaplanes, or other air-craft between the foresaid towns, or places near the said towns, or between any other towns or places in any part of the world which may seem to the directors expedient, and generally to transport passengers, mails, troops, munitions of war, live stock, meat, corn, and other produce, and all treasure and merchandise of all kinds, and to purchase, sell, build, or otherwise acquire, charter, hire, equip, sail, repair, let to hire ships and vessels, air-ships, aeroplanes, seaplanes, or other air-craft, locomotives, engines, waggons, and cars, and to employ the same in the conveyance of passengers and goods and otherwise in the business of the company. ( b) To carry on all or any of the following businesses—that is to say, shipowners and shippers, tourist agents and contractors, general carriers by land, air, and water, wharfingers, lightermen, railway and forwarding agents, warehousemen, hotelkeepers, purveyors, refreshment caterers and contractors in all their respective branches, licensed or otherwise, on board the company's ships or vessels, air-ships, aeroplanes, seaplanes, or other air-craft, or on land, and any other businesses which may seem to the company capable of being conveniently carried on in connection with the above, or calculated directly or indirectly to enhance the value of, or render profitable, any of the company's property or rights. ( c) To insure with any other company or persons against losses, damage, risks and liabilities of all kinds, which may affect this company or any of its customers, shippers or others, in relation to goods conveyed or warehoused or intended to be conveyed or warehoused by this company [and also to carry on the business of marine insurance and marine accidental insurance in all its respective branches, and to effect reinsurance and counter-insurance, and also to accept whole or any part of such risks and liabilities of this company as underwriters] provided that nothing herein contained shall empower the company to carry on the business of assurance or to grant annuities within the meaning of the Assurance Companies Act 1909, or to reinsure or counter-insure any risks under any class of assurance business to which that Act applies. ( d) To [amalgamate with any company carrying on any business which this company is authorised to carry on or possessed of property suitable for the purposes of this company, or to] acquire, carry on and undertake the whole or any part of the goodwill, business, property and assets, and undertake the liabilities of any [such] company, carrying on any business which this company is authorised to carry on or possessed of property suitable for the purposes of this company, and to pay therefor, or for any other purchase made by the company in cash or in shares, stock, debentures or debenture stock of the company, or partly in one or partly in another of such modes, or to enter into any arrangement for sharing profits or co-operation with any such company. ( e) To take or otherwise acquire and hold shares in any other company having objects altogether or in part similar to those of this company, or carrying on any business capable of being conducted so as directly or indirectly to benefit this company, or to promote any company or companies in the United Kingdom or elsewhere for the purpose of acquiring all or any of the property, rights, and liabilities of this company, or for any other purpose which may seem directly or indirectly calculated to benefit this company, and to place or guarantee the placing of, underwrite, subscribe for, or otherwise acquire all or any part of the shares or securities of any such company as aforesaid. ( f) To enter into any arrangements with any governments or authorities, supreme, municipal, local or otherwise, that may seem conducive to the company's objects, or any of them, and to obtain from any such government or authority any rights, privileges, and concessions which the company may think it desirable to obtain, and to carry out, exercise, and comply with any such arrangements, rights, privileges, and concessions. ( g) To remunerate the employees of the company in proportion to or out of the returns or profits of the company; to establish and support or aid in the establishment and support of associations, institutions, funds, trusts,

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and conveniences calculated to benefit employees or ex-employees of the company or the dependants or connections of such persons, and to grant pensions and allowances and to make payments towards insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition, or for any public, general, or useful object. ( h) To erect, purchase, feu, take on lease or excainb, hire, or otherwise acquire or sell any real and personal property, and any rights or privileges, and to equip, hold, maintain, work, and let piers, wharves, slips, docks, aerodromes, hangars, air-craft factories, roads, railways, tramways, water rights, rights of carriage or of passage, water-courses, flumes and dams, telegraphs, telephones, and canals, and any other works and buildings necessary or convenient for the purposes of the company; also to extend, repair, or alter any of these, and to contribute by way of guarantee, money payment, or otherwise towards the construction, equipment, maintenance, or carrying on of the same. (i) To construct, maintain, and alter any buildings or works necessary or convenient for the purpose of the company. ( j) To invest and deal with the moneys of the company not immediately required in such manner as may from time to time be determined. ( k) To lend money [to such persons] and on such terms as may seem expedient, [and in particular] to customers and others having dealings with the company, and to guarantee the performance of contracts by any such persons. ( l) To borrow or raise or secure the payment of money in such manner as the company shall think fit, and in particular by way of loan, discount, cash-credit, overdraft, or guarantee, or upon bills of exchange, promissory-notes, bonds, bonds and dispositions in security, mortgages, cash-credit bonds, debentures, debenture stock, perpetual or otherwise, deposit-receipts, interim receipts, or in any other manner, and to grant security for all or any sums so borrowed or for which the company may be or may become liable, or for the performance by the company of any obligation that may be incurred or undertaken by the company, or any manager or other duly authorised person, and by way of such security to assign, dispone, mortgage, pledge the whole or any part of the property, heritable or moveable, real or personal, or the assets or revenue of the company, both present and future, including its uncalled capital, or to assign, dispone, transfer, or convey the same absolutely or in trust, and to give lenders or creditors power of sale and all other usual and necessary powers; to create and issue at par or at a premium or discount bonds, debentures, mortgage debentures, debenture stock, and other securities payable to bearer or otherwise, and either perpetual or redeemable or repayable with or without bonus or premium and either at a fixed date or by drawings, and to purchase, redeem, or pay off any such securities. ( m) To enter into, carry on, prosecute, and defend all arbitrations, suits, contracts, agreements, negotiations, legal and other proceedings, compromises, arrangements, and schemes, and to do all other acts, matters, and things which shall at any time appear conducive to or expedient for the protection of the goodwill, business, property, or assets of the company. ( n) To remunerate any person or company for services rendered or to be rendered in placing or assisting to place or guaranteeing the placing of any of the shares in the company's capital, or any debentures or debenture stock or other securities of the company, or in or about the formation or promotion of the company or the conduct of its business, or in the formation of any company promoted by this company. ( o) To draw, make, accept, indorse, discount, execute, and issue promissory-notes, bills of exchange, bills of lading, charter-parties, warrants, debentures, cheques, drafts, and other negotiable or transferable instruments. ( p) To distribute any of the property of the company among the members in kind, and in particular any shares, stocks, debentures, or securities of other companies belonging to the company, or of which the company may have the power of disposing. ( q) [To sell, transfer, or dispose of the undertaking, property, rights, real or personal, and business of the company, or any part thereof, for such consideration as the company may think fit, and in particular for cash or for shares, debentures, or securities of any other company, or partly in one and partly in another or others of such modes]. ( r) To obtain or concur with others in obtaining any Provisional Order or Act of Parliament or Order of the Board of Trade for enabling the company to carry any of its objects into effect, or for effecting any modification of the company's constitution, [or for any other purpose which may seem expedient], and to oppose or join with others in opposing any Provisional Order or Act of Parliament or Order of the Board of Trade, or any proceedings or applications which may seem calculated, directly or indirectly, to prejudice the company's interests. ( s) To sell, improve, manage, develop, exchange, lease, mortgage, enfranchise, dispose of, turn to account, or otherwise deal with [all or] any part of the property and rights of the company. ( t) To do all or any of the above things as principals, agents, contractors, trustees, or otherwise, and by or through trustees, agents, or otherwise, and either alone or in conjunction with others. ( u) To do all such other things as are incidental or conducive to the attainment of the above objects. ( v) To promote freedom of contract, and to resist, insure against, counteract, and discourage interference therewith, and to subscribe to any association or fund for any such purposes. ( w) It is hereby declared that the word “company” in this clause shall be deemed to include any partnership or other body of persons whether incorporated or not incorporated, and whether domiciled in the United Kingdom or elsewhere, [and the intention is that the objects specified in each paragraph of this clause shall, except where otherwise expressed in such paragraph, be in no wise limited or restricted by

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reference to or inference from the terms of any other paragraph or the name of the company].”

Note.—The parts above in square brackets were not sanctioned, and the parts in italics were added and sanctioned, by the Court.

The petitioners averred—“13. That the objects contained in the said third clause of the proposed memorandum (in so far as they are not merely declaratory of what the company is at present doing and is entitled to do without express power in its existing constitution) are all calculated to enable the company to carry on its business more economically or efficiently, or to attain its main purpose by new or improved means, or to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company.”

On 5th April 1920 a remit was made of new to Mr Alfred Shepherd, W.S., who in his second report stated—“Your Lordships of this date (November 26, 1919) held that the … procedure was invalid and continued the petition so that the company might have an opportunity of beginning again de novo if they so desired. The company have taken advantage of the opportunity thus afforded to them, and on the 6th and 27th February 1920 held fresh extraordinary general meetings at which a resolution was passed and confirmed as a special resolution of the company in the following terms—‘That the memorandum and articles of association submitted to this meeting, and for the purpose of identification signed by the chairman thereof, be and the same are hereby approved, and that, pursuant to the provisions of the Companies Act 1908, sections 9 and 264, the form of the company's constitution be altered by substituting such memorandum of association with extended objects as therein set forth, and such articles of association, for the company's deed of settlement dated 7th November 1846 and subsequent dates, and for all regulations of the company subsequently made and now in force, and that the directors be and they are hereby authorised to make the necessary application to the Court in terms of the said Act.’ By interlocutor dated 16th March 1920 your Lordships allowed the company to amend the petition by deleting the references therein to the meetings formerly held and to the resolutions purported to be passed thereat, and by substituting a reference to the two meetings above mentioned and to the special resolution above quoted. These amendments include the necessary alteration of the prayer of the petition. The petition is therefore now based entirely upon the said special resolution. The petition as amended was ordered by the said interlocutor to be of new intimated and advertised. This has been duly done, the inducice have expired, and no answers have been lodged. The procedure in connection with and at the said extraordinary general meetings of the company held on 6th and 27th February has been regular, and the said special resolution above quoted was duly passed and confirmed thereat. The company have now accordingly, subject to confirmation by the Court, validly adopted the memorandum of association with extended objects and the articles of association referred to in the said resolution, and it only remains for your Lordships to consider the form and terms of the said memorandum and articles

The proposed articles of association appear to be in order, but the reporter in his previous report… directed your Lordships' attention to the objects clause of the memorandum of association proposed, and to certain important opinions which had been expressed in the House of Lords with reference to the proper form and contents of the objects clause of a memorandum of association. These matters were not dealt with at the former discussion before your Lordships, which was confined to the question of the validity of the preliminary procedure. Subject therefore to such modifications, if any, as your Lordships may on consideration deem to be necessary upon the objects clause of the memorandum of association, the reporter is of opinion that the alteration of the form of the company's constitution and the alterations made with respect to its objects may now be confirmed by the Court.”

The passages referred to in the first report were—“The formal clauses of the memorandum are in order, but the reporter considers it necessary to direct your Lordships' attention to clause iii of the memorandum—the objects clause. This clause which is set out in the petition contains twenty-three paragraphs setting forth the objects of the company. Objects clauses of this type are common if not universal among companies which are formed to-day, and they include under the heading of the objects of the company many things which are not objects but really powers—as, e.g., the drawing and making of bills of exchange and promissory-notes—by means which it is proposed to accomplish the objects properly so called. But the clause in the present memorandum does include, in addition to the primary objects of the company to establish and maintain lines of steam or other ships for the carriage of passengers and goods, a variety of other objects ranging from the erection and working of air-craft factories to the promotion of freedom of contract. It contains also a provision in the last paragraph that the objects specified in each paragraph of the clause shall, except where otherwise expressed in the paragraph, be in no wise limited or restricted by reference to or inference from the terms of any other paragraph or the name of the company.

While, as already stated, object clauses such as that in the present case are common, and while the present memorandum would no doubt be accepted by the registrar in the case of a new company being incorporated, the reporter considers it to be his duty, seeing that judicial sanction is required to the adoption by the company of the memorandum here in question, to direct your Lordships' attention to the fact that objects clauses of this kind were the subject of severe comment by the House of Lords

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in the recent case of Cotman v. Brougham [1918] A.C. 514. All the learned Lords advert to the nature of the memorandum in that case, and question whether it is in such a form as to comply with the requirements of the Companies (Consolidation) Act. The House, however, did not find itself in a position in that case to determine the point owing to the statutory finality of the registrar's certificate of incorporation. Your Lordships are not so hampered in the present case, as the memorandum now in question only becomes operative when, and to the extent to which, the adoption of it. by the company is confirmed by the Court.

The question of what are the true requirements of the Act as to the statement of a company's objects in its memorandum are, however, fully discussed by Lord Wrenbury in his opinion in Caiman v. Brougham, before referred to. The learned Lord says at p. 522—‘I cannot doubt that when the Act says that the memorandum must “state the objects,” the meaning is that it must specify the objects, that it must delimit and identify the objects, in such plain and unambiguous manner as that the reader can identify the field of industry within which the corporate activities are to be confined.’ After explaining the purpose of such a provision in the Act, and the distinction between the objects of a company and the powers of a company (which latter his Lordship says ought not to be specified in the memorandum) Lord Wrenbury proceeds (p. 523)—‘There has grown up a pernicious practice of registering memoranda of association which under the clause relating to objects contain paragraph after paragraph not specifying or delimiting the proposed trade or purpose, but confusing power with purpose, and indicating every class of act which the corporation is to have power to do. The practice is not one of recent growth. … It has arrived now at a point at which the fact is that the function of the memorandum is taken to be not to specify, not to disclose, but to bury beneath a mass of words the real object of the company with the intent that every conceivable form of activity shall be found included somewhere within its terms. The present is the very worst case of the kind that I have seen. Such a memorandum is not, I think, a compliance with the Act.’

The objects clause of the memorandum in the case of Cotman v. Brougham contains thirty paragraphs. That in the present case contains twenty-three paragraphs, and both include a provision designed to make each paragraph independent of all the others—a provision described by Lord Finlay, L.C., in Cotman's case as ‘extraordinary.’

It is right that the reporter should also point out that in the case of The London and Edinburgh Shipping Company, Limited 1909 S.C. 1, the other Division of the Court of Session sanctioned the adoption by that company of a memorandum the objects clause of which contained twenty-two paragraphs. The general question of the form of the memorandum was not, however, brought before the Court in the case mentioned, and the objects specified were much more limited and homogeneous than in the present case and were approved by the reporter, The objects clause in the London and Edinburgh case did, however, contain a provision making each paragraph thereof independent of the others, and this provision was brought by the reporter to the notice of the Court and was sanctioned.

In these circumstances it seems to the reporter to be a matter for your Lordships' consideration whether, assuming the special resolution to have been held to be duly passed and confirmed, your Lordships are prepared to confirm the alteration of the company's constitution by the adoption of the memorandum in its present form.

If your Lordships are prepared to give sanction to the memorandum in its present form there are certain of the objects therein contained to which it seems necessary to direct your Lordships' attention.

As stated above the memorandum contains an alteration of the company's objects. … The company is at present a carrier of passengers, goods, and mails by sea, and of goods by land, so far as that is involved in the collection and delivery of goods carried by the company by sea. It is now proposed that the company should be authorised, inter alia, to establish and maintain lines of air-ships, aeroplanes, seaplanes, or other air-craft (paragraph ( a)), to equip, hold, maintain, work, and let aerodromes, hangars, and air-craft factories (paragraph ( h)), to carry on the business of marine insurance and marine accidental insurance in all its respective branches (paragraph ( f)), to lend money to such persons as may seem expedient (paragraph ( k)), to sell, transfer, or dispose of the undertaking of the company (paragraph ( g)), to obtain any Provisional Order or Act of Parliament not only for enabling the company to carry any of its objects into effect but also for any other purpose which may seem expedient (paragraph ( r)), to promote freedom of contract, and to resist, insure against, counteract, and discourage interference therewith (paragraph (v)).

In view of the provision in the memorandum declaring each paragraph to be independent of the others, any of these objects, if sanctioned, would enable the company completely to change its character. Some of them, e.g., the general power to lend money and the power to sell the undertaking, have already been refused by the Court. (See London and Edinburgh Shipping Company, supra, and John Walker & Sons, Limited, 1914 S.C. 280.) The reporter finds it difficult to bring any of the objects above mentioned within the scope of the alterations of objects allowed by section 9 of the Companies (Consolidation) Act.”

Argued for the petitioners—The form of the objects clause was quite usual, and similar forms were to be found in all the recent cases. There was nothing restrictive in the original contracts of copartnery. Cotman v. Brougham, [1918] A.C. 514, per Lord Wrenbury at p. 522, was obiter, and

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in any event legislation was the only appropriate remedy for the abuse there adverted to. ( a), ( b), and ( h) of the objects introduced carriage by air, but the general business of the petitioners was carriage—by air was simply a new mode of carriage, and its introduction was modernising the business methods of the petitioners. The part in square brackets in ( c) was dropped. ( d) contained power to amalgamate; that power had not been objected to by the reporter; it was a useful power, and had been sanctioned, at least where there was already power to amalgamate— Union Bank of Scotland, 1918 S.C. 21, 55 S.L.R. 62; Aberdeen Steam Navigation Company, 1919 S.C. 464, 56 S.L.R. 343; Macfarlane, Strang, & Company, 1915 S.C. 196, 52 S.L.R. 113—but it had been refused in the earlier case of John Walker & Sons 1914 S.C. 280, 51 S.L.R. 246. Palmer's Company Precedents, 11th ed., part i, p. 504, was referred to. ( k), power to lend money, would be restricted to power to lend money to customers, and for that there was authority— London and Edinburgh Shipping Company, 1909 S.C. 1, 46 S.L.R. 85. In view of the decision in Walker's case ( q) was dropped. The petitioners were willing to drop out of ( r) the words “or for any other purpose which may seem expedient;” with that alteration the power to promote provisional orders, &c., should be sanctioned. Similarly, subject to the deletion of the words “all or,” the power to sell ( s) should be sanctioned— Walker's case ( cit.). (v), Power to promote freedom of contract, &c., was found in practice—Palmer ( op. cit.), i, p. 516. The words at the end of ( w) were designed to prevent freedom of operation arising out of the rule of ejusdem generis and should be sanctioned—Palmer (op. cit.), i, p. 513; London and Edinburgh Shipping Company's case, though Walker's case was contra.

The Court confirmed the form of the petitioners' constitution and the alterations made with respect to the objects of the company as above shown.