THE BANK IN COURT.

Dominion, Volume 6, Issue 1842, 30 August 1913, Page 3

THE BANK IN COURT.

I »— , SHAREHOLDERS' APPEAL. DECISION OF FULL BENCH. ' TEXT OF JUDGMENT. —i— IN FAVOUR OF THE STATE. Yesterday' afternoon at the Supreme Court his Honour Mr. Justice Oliapman delivered judgment in the Bank of New Zealand case, which was heard on. August 13 and 14. 'This was a case in which Sidney Kirkcaldie, draper, Wellington, and Charles Brendergast Knight, barrister and solicitor, Wellington (suing on behalf of themselves and all the other holders of ordinary shares in the Bank of New Zealand), were the plaintiffs, and the Bank of New Zealand was defendant. Mr. C. P. Skerrett, K.C., Mr. G. P. Morison, K.C., and Mr. R. M. Watsoh represented the plaintiffs, and tho Solicitor-General (Mr. J. W. Salxnond, K.C.), appeared for tho Attorney-General, on whom the summons had been ordered to bo served, whilst Sir John Find'lay, K.C., and Mr. M. Myers appeared for tQio Bank of New Zealand. The case was heard before a Full Bench, the Chief Justice (Sir Eobort Stout) being associated with his Honour Mr. Justico Edwards and his Mr. Justice Chapman. Tho Issues and the Court's Findings. The questions to be decided' aad' the answers (by "bis Honour tho Chief Justice, Sir Robert Stout) were as follow: — 1 Question (1): Whether the rights and powers of the shareholders of the Bank of Now Zealand, conferred upon, them by (a) the bank's deed of settlement;' (b) Section 8 of the New Zealand Bank Act, 1861; and (c) by Section 8 of the Banking Act, 1908, of increasing tilie capital of the bank by tflie issue of new shares, is subject to any, and', if so, to what, restrictions or conditions, and in particular: Answer: The Shareholders hare no power to authorise the issue of i new shares under any or all of the provisions mentioned. Question (2): Are tho shareholders restricted from creating new shares conferring on the holders thereof rights, privileges, or priorities which will affect the rights, privileges, or priorities attached to tie preference shares mentioned in Section 9 of the Bank of Now Zealand Act, 1903, or are they restricted in any ot'ner respect P Answer: Yes. They aio restricted for tho reasons already given. Question (3): Will the creation and issue\of increased capital in the form of new ordinary shares subject to the conditions hereinafter mentioned fall within such or other restriction (if any) on the power of the shareholders to incroase tho bank's capital by the'issue of ordinary shares; namely: (a) The issue of further ordinary shares which shall for the purpose of Section 10 of the Bank of New Zealand A.ct, 1903, and for other purposes, rank pari passu with the ordinary shares of tlhe bank existing at tho timo of the passing of such Act; (b) the issue of further ordinary shares liihich sliall entitle tho holders thereof to share pari passu 'with the other holders of "the ordinary shares for the time being of tho bank in the profits available "in each year for division among; shareholders after first paying out or providliw; out of such profits the dividend or dividends wkch the holders of tho "preference shares" would be entitled to under the Bank of Now Zealand Act,' 1903, if the capital of the bank had not been increase*.!; or (cV the issue of further ordinary shares which shall entitle tho holdcis thereof to sliaro ■pari passu with the other holders of tho ordinary shares for the time being of tho bank in tho profits available in each year for division amongst shareholders after first paying or providing out. of sutfh profits to the holder of tho "preference shares" the maximum dividend of 10 ner cent. Answer: This question is already an- . swered in the answer to question 1. Question (4): Whether the' shareholders of the bank are entitled to direct tho directors of the bank to call up or alternatively whether the directors of tho bank aro entitled to call up the uncalled liability of £3 6s. Bd. per share subsisting on the ordinary shares of the bank; and ,whether upon payment of such liability, or any part, thereof, tho amount.so paid shall be deemed to bo part of the capital of the ordinary shares; and entitled to be treated for the purposes of Section 10 of the Bank 'of New Zealand Act, 1903, and for all other purposes as part of the capital of the ordinary shares of tho bank; Answer: The directors may call up the ■ amount of the liability, but they cannot bo compelled to do so. Question (5): Whether upon tho creation of any new capital tile bank may bo authorised to issue tho shareholders may direct and resolve that such new capital shall bo issued at par or at a premium; and in particular may determine direct 'and resolve that the new capital .shall be offered in tho first instance to the holders of the shares numbered 1 to 150,000, both inclusive, in proportion to tho amount of capital held by them; , and in such event whether the holder of "tho profercneo shares' would he entitled to requiro such new capital to be offered to it in tho proportion which its holding of "preference shares" boars to the whole share capital of the company. Answer: Yes, if there was a right to issue new shares they might bo issued ns tho shareholders resolvod, but there is no such right. The Deed of Settlement. In the course of .his judgment (which was read by Mr. Justice Chapman), his Honour the Chief Justice said:— It has to ho remembered that in these different Acts thero is provision that the deed of settlement must bo read subject to tho statutes: see Section 17 of Act No. 2, 1894, Section 27 of Act No. 9, 1893, Section 28 of Act No.. 83, 1903- The words of Section 28 of the Bank of New Zealand Act, 1903, are as follow: — "28. Tho deed of settlement of the Banic of New Zealand Share Guarantee Act, 1894, the Bank ot Now Zealand and Banking Act, 1893, the Bank of Now Zealand ■ and Banking Amendment Act, 1898, and every other Act or enactment which is in any way in conflict with this Act, aro horeby respectively modified in so far as such conflict exists, but not further or otherwise." Broad Relations of Dank and Stato. In dealing with this question, what is termed tho purviow—the whole outlook —of the legislation to be considered It is clear that, sinco 1898 at all events, tho Bank of Now Zealand lias becomo n scnii-natiomil institution. In soino rcspccts it is not unlike tlio Bank of France. In the Bank of Franco the Government appoints the governor and ttt'o deputy-governors. A great number of shares arc held by tho Government; and possibly tho Government can vote as shareholders. 11l the bank of New Zealand, four out of the six directors are appointed by the Government. Tho Government holds £500,000 of tlio capital, and at present guarnntcs £1,000,000 more, whilst tho shareholders hold £500,000 of capital, and aro liable for anotli.er £500,000. Further, tho Govorumont Bank in tho

. Bank of New Zealand: and tho Government is no doubt the bank's best customer. Perhaps, without the Government business, tlio business and the prestige of the bank would not he anything like what it is. Of course, if it is clear that- the wide power of the shareholders is still left, these considerations cannot arise: but I am of opinion, considering the legislation of tho past, that it rests with the plaintiffs to show that the wide powers that they still claim for the shareholders still exist. It is plain, as was pointed out at the bar, that, if those powers do exist, the shareholders could—subject, no doubt, to the veto of the Governor-in-Council, referred to above—apportion the new shares among the shareholders, and give them to the shareholders at par. If tlio shares were at a premium, that might mean dividing a million of money amongst tlio shareholders, or giving them a large share of the goodwill of the bank. On tho other hand, the plaintiffs submit that the Government never meant to bo anything but a guarantor: and what was' given to the Government was in the nature of a security given to a mortgagee, and that now the bank can dispense with the assistance of the Government. These considerations are more for tho Legislature than for tho Court. Tlie duty of this Court is to try to discover what the various Acts mean. Issue of New Shares and the Act of 1903. The important consideration is, do the provisions of the statutes —and especially Section 10 of tho Act of 1903— show that it is possible to. issue new shares and vet give effect to tlie said Section 10?" Can .pre-prcference shares be issued ? Tho plaintiffs contend that, even if these cannot be issued, still ordinary shares can be issued. But where is this limitation? _ The definition of "ordinary shares" is in Section 2 of the Act of 1905. If not inconsistent ■with the context, the words "ordinary shares" mean all tho "now subsisting sliares" in the bank other than tho guaranteed stocky and the preferred shares referred, to in Section 4 of tlie Bank of Now Zealand and Banking Act, 1895. If we turn to Section 2 of tlie Act of 1904 (No. 2) wo find tbat tho guaranteed stock mentioned in tho Act of 1903 is to have priority, both as to capital and dividend, as against the assets of tho bank over all existing shares of ,tho bank, whether preference or ordinary. AYhat does "ordinary" mean? ,It must mean-tho ordinary sliares now existing. _ There is nothing in the context to give it a different moaning. If, then,_ it means ordinary shares as defined in the statute, if tliere is power in tlie shareholders to issue fresh ordinary shares, then the capital stock would not have priority as against tho assets of the bank over tliose now shares. This would surely bo inconsistent with the_ clear object and construction of Section 2 of tho Act of 1904 (No. 2). Shareholders Powerless. Perhaps, however, the most important consideration in this respect arises regarding' Section 10 of the Act of 1903, What Section 10 provides has been already pointed out. It shows how the profit's of the bank are to bo divided, and, unless tlio shareholders could by ! any resolution, vary Section 10, there 1 is no provision for paying any dividend ; to a now class of ordinary or other shares to bo issued in accordance with ' a resolution of tho shareholders. Tho owners of ordinary shares now existing havo certain privileges and rights which, ' it is clear, cannot be destroyed by tho ' shareholders of tlie bank. These ordinary shares are quite different from tho : ordinary shares that wero contemplated by tho' Deed' of Settlement. Their value is £6 13s. 'Id., and tho balance : unpaid £3 (is. Bd., can be called up for | the purpose of adding capital.. The ordinary shares mentioned in'. the Deed !' of Settlement wero £10 shares; and an- ' other £10 could, in the event of liqui- ' dation, bo claimed from the sharehold- ' ers: There wan no provision for pre- , fcrence shares in the Deed of Settle- , nient, and up to 1894 none existed. The ! power- relied on to issue new sharps is , contained in Paragraph 13 of the Deed ! of Settlement. That paragraph is as ' follows: — i That after the original capital of ; . five hundred thousand pounds shall ■ havo been fullv paid up, but not sooner, it shall be lawful from time I to time for the proprietors, by a spcoial resolution, >to create such 'further and additional shares of £10 each as may bo.deemed advisable, such ad- > diitiolial shares to be allotted, disposed of, and paid for (by instal- ' ments or otherwise) in such manner, at such time, and upon such i terms and conditions as the specia. i resolution (or in default thereof) : the board shall proscribe. ' Under paragraph 14 these shares were ! to bo subject to tho provisions of the ' deed of settlement, and under paragraph ' 122 a call up to £10 per .share could : bo made in case of tlie .liabilities ex- | cesU'ing the assets, it. is contended, however, that tho Act of 1893, consolidated, and litow appearing in the lianki ing Act of 1908, gave all tile powers ' neccssairy to issue sucii shares. Tho seotiop relied on is Section 5 of the Act ■ of 1808. It says that, notwithstanding ' anything in any Act of the General i Assembly of Now Zealand relating to banks or in tho charter- of any banu ; incorporated in New Zealand and carry- . in."-- on tlio business of banking only, • tho shareholders or proprietors-thereof may, from time to time .-.by extraordinary resolution), authorise its capital to bo increased to suoli amount, and upon such terms, and either with or ; without special privileges, preferences, , and priorities to tho holders of shares ' in such increased capital as they may from time to time deem expedient, and ■ the iame may be increased accordingly. Thoso general words are amplified in paragraphs (a) and (b) of Sub-section (9) ol tho sa.mo section. Sub-section 3 1 gives tho power to issue Shares with priorities. 1 In my opinion this general power is entirely inconsistent with Scetion 10 of the Act of 1903, and with Section 2 of tho Act of 1904. .These powers, it exercisable and exercised, would Praci tically repeal these provisions in the statutes of 1903 and 1904. And. a ! genoral statute cannot, in my opinion, be invoked for any such purpose. ,_rii3 i special regulations must ovcrrido these ! general provisions. Reliance caiuiot, therefore, be placed on SGction 5 of tho ' Act of 1903. ; The Stato Controls tho Bank. It was admitted during the argument that this general Act must be .construed as if enacted in 1893, and that 110 additional validity was given to its provisions by their appearing in the consolidating Banking Act of 1908. If tho various paragraphs »n the deed ot settlement are cxeroised and compared with the provisions of tho various statutes of 1894, 1895, 189S, 1903, and 1904, it will.bo at once apparent that tho constitution and management provided in tho deed of settlement have, been largely modified and changcd. No power of any importance is left to the shareholders. Tho bank has. become, 1 as I have already stated, a- sem.i-nat-.onal : institution. The shares a,ro d|iferenu, • and tho control, so far as the issue ot I new shares is concerned, is different, i The voting of the shareholders is dif- ! ferent, for there is no 'oto by the > owners of the preference shares; the , location, of the head office is different, 1 and the liabilities 011 the ordinary shares aro different. Priorities and privileges aro granted; tho Govcrnor-in-Council has a (lower of vote which can, ill cert tain circumstances, bo exorcised. Meetings of Shareholders are to be held, but tliT' management is -really under the con- : trol of the Government. ' lf.is Honour added that costs would be " allowed 'in accordance with 28 of the 3 schedule to tho code—£3o 011 the motion , and £16 16s. for second counsel for twe days allowed to tho baiik. Costs of the 3_LCrown wero alloTvcd at £30.