Marlow v Commissioner of Estate and Gift Duties, Suva [1984] FijiLawRp 2; [1984] 29 FLR 117 (27 March 1984)

[1984] 29 FLR 117

SUPREME COURT OF FIJI

Civil Jurisdiction

KEITH ALFRED EDWARD MARLOW & ANOTHER

v

THE COMMISSIONER OF ESTATE AND GIFT DUTIES,
SUVA & OTHERS

Kermode J.

27 March 1984]

Issue of preference shares - right to share in surplus assets of winding up - referrable to Memorandum and Articles, terms of Resolutions passed or other evidence as to terms of issue - voting rights - donor primarily liable for gift duty.

B. N. Sweetman for Plaintiff
M. J. Scott for 1st Defendant
F. G. Keil for 2nd Defendant

Plaintiff sought a determination of four questions related to preference shares issued by Marlows Limited (formerly Fiji Builders Ltd.) (the Company).

On 18 October 1943 the late A. H. Marlow entered into a deed of separation with his then wife Geraldine Alice Marlow and created then the Marlow Trust.

The Marlow Trust settled on the wife for her life (inter alia) 3,000 $2 preference shares in the Company, dividends to be payable to her during her life. The shares had been issued to the husband in 1938 pursuant to a Resolution passed at a General Meeting of the company in the following terms:

"Preference Shares: Proposed by Mr A. H. Marlow and Seconded by F. W. Bond. That 3000 Shares of the Capital of the Company be made Preference Shares, with the right to a fixed Cumulative Preferential Dividend of 7% per annum on the Capital for the time being paid up thereon, and the right in a winding up to payment off the Capital and arrears of dividend, whether declared or undeclared up to the commencement of the winding up in priority to the Ordinary Shares of the Company."

On 16 May 1970 the Company at the husband's request and on payment by him of $10,000 issued a further 5,000 $2 preference shares pursuant to a Resolution passed similarly recorded in minutes as follows .

"Preference Shares It was resolved that 5,000 7% Preference Shares be issued to Marlow Trust at par."

The husband did not make any Gift Duty Statements or pay any duty in respect of the 1970 gift, an omission remedied by a statement filed and dated 5 March 1981.

The 4 questions submitted to the court were as follows:

"(1) Whether on the true construction of the Memorandum and Articles of Association of Marlows Limited the 8,000 preference shares of that company held in the Marlow Trust should be valued as at the 25th day of January, 1980 on the basis that any surplus assets of the Company ought to be distributed on the footing that the preference shareholders were entitled to participate with the ordinary shareholders in such distribution rateably or in some other and what proportion, or upon the footing that the preference shareholders had no right to participate in such distribution?"

"(2) Which party or person is primarily liable for payment of gift duty (if any) on the gift made by Alfred Henry Marlow deceased to the Marlow Trust on the 16th day of May 1970 comprising a $10,000.00 credit with Marlows Limited applied at the request of the said Alfred Henry Marlow in the issue to the Marlow Trust of $5,000 preference shares of $2.00 each in Marlow Limited?"

"(3) Whether the preference shares carry voting rights?"

"(4) Whether the 2nd issue of preference shares are subject to the same conditions as the first issue?"

The questions may now be considered in order.

The main issue was that raised by the first question namely how the 8,000 preference shares should be valued. That involved deciding whether the holders of those shares would have been entitled on winding up of the company to participate in surplus assets."

The question was a purely hypothetical, there being then no intention of winding up the company.

The share certificates relating to the separate issues were in identical terms purporting to express the terms on which issued viz.

"The preference shares carry a final Cumulative Preferential Dividend at the rate of 7 per centum per annum and rank as to dividend and capital in parity to the Ordinary Shares but convey no further right to participate in profits or assets."

The Memorandum and the Articles of the Company did not spell out the rights of different classes of shares but provided reference to terms of any shares issued. (See para. 3(p) of the Memorandum).

Paragraph 6 of the Memorandum also had application viz:

"The capital may from time to time be increased and the present capital or any part thereof and the whole or any part of such increased capital may from time to time be issued as ordinary or deferred shares or at a discount or at a premium or with any preference guarantee privilege or other advantage and upon such terms and conditions as the directors think fit and all or any part of the share capital for the time being of the Company may be issued as fully or partly paid up."

It was common ground that the two issues of shares were lawfully made in exercise of the powers provided in the Memorandum.

Neither of the resolutions authorising the share issues made mention of rights as to participation in or a sharing of surplus assets, in the sense used in the judgment.

Article 147 made clear that special rights could be conferred by special resolutions passed by the company. It was argued on behalf of the plaintiff that the 8,000 preference shares were by article 146 given the right to share in a surplus on winding up.

Held: To determine what rights a preference shareholder has, recourse must be had to the Memorandum and/or Articles of the Company or the terms of resolutions passed by the company in general and special meeting. The share certificates may also be referred to if there is not otherwise evidence as to the terms on which the shares to which such certificate relates were held. The rights of preference shareholders were dependent upon the Resolutions creating such shares or by the Articles (amended by any relevant Resolution.)

Since neither the Memorandum nor Articles of the Company had any provision entitling the preference shareholders to share any surplus assets (other than Article 146) the Scottish Corporation case (supra) indicated the preference shareholders had only such rights as were conferred by the resolutions of the company at the time of issue.

All counsel agreed as to the answers to the 2nd and 3rd questions. The terms of issue of the second parcel of shares determined the rights conferred thereon by the Company, being these contained in the relevant resolutions viz a fixed dividend of 7% and the issue of the shares at par.

The answer to the questions posed therefore are as follows:

1. None of the preference shareholders have a right to distribution in surplus assets as earlier defined on winding up.

2. The Donor was primarily liable.

3. The preference shares do not carry voting rights.

4. The second issue of preference shares was not subject to the same conditions as the first.

Cases referred to:

Scottish Insurance Corporation Ltd v Wilsons and Clyde Coal Co Ltd [1949] 1 All ER 1068.
White v Bristol Aeroplane Co Ltd [1953] 1 All ER 40.
Re John Dry Steam Tugs Ltd (1932) 1 Ch 594.
Re Isle of Thamer Electricity Supply Co Ltd [1950] 1 Ch 161.
In re Espuela Land and Cattle Company (1909) 2 Ch 187.
Dimbula Valley (Ceylon) Tea Co Ltd v Laurie [1961] All ER 769.

KERMODE, J.

Judgment

The plaintiff seeks the determination of the Court of four questions which will be referred to later.

Mr E. H. Marlow, one of the second defendants, in his affidavit filed in support of the plaintiff's summons has set out the facts which gave rise to a difference of opinion between the plaintiffs and the first defendant and the second defendants resulting in this application.

By a Deed of Settlement (hereinafter called "the Marlow Trust") dated the 18th day of October, 1943 entered into by the late Geraldine Alice Marlow (hereinafter called "the first deceased") and the late Alfred Henry Marlow (hereinafter called "the second deceased") the parties entered into a Deed of Separation and the second deceased created the Marlow Trust.

The Marlow Trust settled on the first deceased for her life (inter alia) 3,000 $2.00 preference shares in Marlows Limited (then Fiji Builders Limited), (hereinafter called "the Company"), the dividends to be payable to her during her life.

The said 3,000 preference shares had been issued to the second deceased in 1938, pursuant to a resolution passed at a general meeting of the Company, in the following terms:

"Preference Shares Proposed by Mr A. H. Marlow and Seconded by F. W. Bond. That 3000 Shares of the Capital of the Company be made Preference Shares, with the right to a fixed Cumulative Preferential Dividend of 7% per annum on the Capital for the time being paid up thereon, and the right in a winding up to payment off (sic) the Capital and arrears of dividend, whether declared or undeclared up to the commencement of the winding up in priority to the Ordinary Shares of the Company."

On the 16th May, 1970 the Company at the request of the second deceased and on payment by him of $10,000 issued a further 5,000 $2.00 preference shares pursuant to a resolution passed at a general meeting. The minutes of that meeting record as follows:

Preferences Shares It was resolved that 5,000 7% Preference Shares be issued to Marlow Trust at par."

The share certificate for these 5,000 shares was made out in the names of Keith Alfred Edward Marlow, Ralph Sidney Marlow and Eric Henry Marlow because the second deceased at the time believed that Ian Eric MacKinnon had retired from the Trust and had been replaced by Messrs. Ralph Sidney and Eric Henry Marlow. There was not however any formal resignation or appointment of any new trustees.

The said Ralph Sidney Marlow died in 1963 and by Declaration of Trust dated 20th February 1981 Messrs. K A. E. and E. H. Marlow declared that they held the said 5,000 additional preference shares upon the same trusts as the original 3,000 preference shares are held by the trustees thereof.