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[1985] BCLC 293

Re F H Lloyd Holdings plc

CHANCERY DIVISION

NOURSE J


7, 8, 15, 28 MARCH 1985



Interest in shares - Foreign company - Jurisdiction of court to impose restrictions on shares - Companies Act 1948, s 174 - Companies Act 1981, ss 74, 77.

TDB was a Luxembourg company which did not have any presence in the United Kingdom. It held shares through an English nominee company for a client in F H Lloyd Holdings plc (the company). The shares of the company were listed on the London stock exchange. The company served notice on TDB under s 74 of the Companies Act 1981 requiring information with respect to the identity of the persons who had interests in the shares held on behalf of TDB, but this notice was not replied to. In the present proceedings the company sought an order under s 77 of the Companies Act 1981 that the shares held on behalf of TDB be made subject to the restrictions imposed by s 174 of the Companies Act 1948. TDB contended that as it was a foreign company the court lacked jurisdiction to make the order or, alternatively, that the court should exercise its discretion not to make the order sought.

Held - Order granted. The English nominee company held the shares and its contractual rights against the company in trust for TDB. TDB thus held a beneficial interest in the shares. Since the trust property was situated in England and the trustee was resident in England, TDB's beneficial interest was situated in England. Accordingly, the usual principle that United Kingdom legislation applied to a foreigner's interests in English property, whether or not he had an actual presence in this country, meant that ss 74(1) and 77(1) were applicable to TDB. In addition, there was no justification for interpreting 'any person' in s 74(1) or s 77(1) as not including foreigners who had not by coming into the United Kingdom made themselves subject to British jurisdiction. The court, therefore, had jurisdiction to grant the order sought. Although the court would not exercise its discretion under s 77(1) where the company's requirement for information was frivolous or vexatious, it was not necessary for the company to show that it had a real ground for believing that the person interested in the shares was seeking to build up a substantial holding in the company. This was a proper case in which the court should exercise its discretion to grant the order sought (see pp. 298a-d, 300a-e, 300h-301a, post).

Cases referred to in judgment

Blain, ex p (1879) 12 Ch D 522.

Clark (Inspector of Taxes) v Oceanic Contractors Inc [1983] 1 All ER 133, [1983] 2 AC 130, [1983] 2 WLR 94, HL.

Hardwick Game Farm v Suffolk Agricultural Poultry Producers' Assocn [1968] 2 All ER 444, [1969] 2 AC 31, [1968] 3 WLR 110, HL.

House of Fraser plc, Re (1983) SLT 500.

[1985] BCLC 293 at 294

Cases also cited

A B & Co, Re [1900] 1 QB 541, CA; affd sub nom Cooke v Charles A Vogeler Co [1901] AC 102, HL.

Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd [1933] All ER 82, [1934] AC 122, HL.

Air India v Wiggins [1980] 2 All ER 593, [1980] 1 WLR 815, HL.

Ashbourne Investments, Re [1978] 2 All ER 418, [1978] 1 WLR 1346.

Baxter, R v [1971] 2 All ER 359, [1972] 1 QB 1, [1971] 2 WLR 1138, CA.

Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1982] 1 All ER 293, [1983] AC 34, [1983] 2 WLR 264, HL.

Cox v Army Council [1962] 1 All ER 880, [1963] AC 48, [1962] 2 WLR 950, HL.

Diamond v Bank of London & Montreal [1979] 1 All ER 561, [1979] QB 333, [1979] 2 WLR 228, CA.

Draper (CEB) & Son Ltd v Turner (Edward) & Son Ltd [1964] 3 All ER 148, [1965] 1 QB 424, [1964] 3 WLR 783, CA.

English v Donnelly [1958] SC 494.

Falcon v Famous Players Film Co Ltd [1926] 2 KB 474, CA.

Gold Star Publications Ltd v DPP [1981] 2 All ER 257, [1981] 1 WLR 732, HL.

Hickman v Kent and Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881.

Holwell Securities Ltd v Hughes [1974] 1 All ER 161, [1974] 1 WLR 155, CA; affd [1973] 2 All ER 476, [1973] 1 WLR 757.

Jefferys v Boosey (1854) 4 HL Cas 815, HL.

Krzus v Crow's Nest Pass Coal Co Ltd [1912] AC 590, PC.

Macleod v A-G for New South Wales [1891] AC 455, JCPC.

Oliplant, R v [1905] 2 KB 67.

Reuss (Princess) v Bos (1871) LR 5 HL 176, HL.

Routledge v Low (1868) LR 3 HL 100, HL.

Tomalin v S Pearson & Son Ltd [1909] 2 KB 61, CA.

Winans v A-G (No 2) [1910] AC 27, HL.

Motion

By motion, F H Lloyd Holdings plc, the company, applied for an order pursuant to s 77(1) of the Companies Act 1981, directing that certain shares in the company be subject to restrictions under s 174 of the Companies Act 1948. Geneva Nominees Ltd and Trade Development Bank Luxembourg SA, the eighth and fifteenth respondents respectively, opposed the application.

Elizabeth Gloster for the company.

Michael Crystal QC and John Cone for the eighth and fifteenth respondents.

Cur adv vult

28 March 1985. The following judgment was delivered.



NOURSE J.

This is an application by F H Lloyd Holdings plc ('the company') under s 77(1) of the Companies Act 1981 for an order directing that certain shares in the company shall be subject to the restrictions imposed by s 174 of the Companies Act 1948. The ground of the application is an admitted failure by a person interested in the shares to give the company the information required by a notice served under s 74 of the 1981 Act. The person interested is

[1985] BCLC 293 at 295

a foreign corporation which is not entitled to and does not carry on business in the United Kingdom and has no presence here. Relying on the principle that United Kingdom legislation does not usually have extra-territorial effect, it claims that it is outside the purview of ss 74 and 77(1).

The company is a listed public company which was incorporated in England. It has an authorised share capital of £8m divided into 32m shares of 25p each, of which 24,065,970 are issued and fully paid. Its business is spread between foundries, steel and engineering and services divisions.

In November and December 1984 the company served notices under s 74 requiring twelve nominee companies, three of whom are based in Jersey and the remainder in England, to state whether or not they were interested in holdings of shares registered in their names and, if they were not the sole beneficial owners, to state the name and address and the nature of the interest of any other person interested in those shares. The total number of shares involved was 1,026,900 or about 4.27 per cent of the company's issued share capital. All nine English companies duly complied with the notices, but the three Jersey companies declined to do so. In eight of the other cases the trail led to foreign banks, six in Switzerland, one in West Germany and one in Luxembourg, who were then themselves served with notices under s 74. All of them have either declined or failed to comply with those notices. In the ninth case the trail led to an English firm which was duly served with a notice under s 74, but has failed to comply with it. By the middle of February it seemed clear to the company that it was not going to obtain the information which it had required in respect of any of these shares. Furthermore, at the end of January and the beginning of February it received three notifications pursuant to s 63 of the 1981 Act from another company called Suter plc. The last of these, which was received on 5 February, stated that Suter had by then acquired a holding of 3,390,000 shares in the company or about 14.1 per cent of its issued share capital.

These events caused the company to believe that the possibility existed that persons who might be interested in building up substantial holdings in the company were doing so through the medium of overseas nominees, so as to avoid the disclosure provisions of the Companies Acts and also, possibly, the rules made by the Council for the Securities Industry and r 34 of the City Code on Takeovers and Mergers. Accordingly, on 21 February counsel for the company (Miss Gloster), relying on Re House of Fraser plc (1983) SLT 500, moved ex parte on behalf of the company under s 77(1). I ordered that the 1,026,900 shares earlier referred to should be subject to the restrictions imposed by s 174 of the 1948 Act until 4 March. I also gave leave to serve the foreign respondents outside the jurisdiction.

By the return date on 4 March most of the respondents had been duly served with notice of motion. The relief was continued against all the respondents except two, either by agreement or, in the cases of two who had not been served with notice, ex parte.

The two remaining respondents are Geneva Nominees Ltd ('GNL') and Trade Development Bank Luxembourg SA ('TDB'). The material facts as to these respondents are the following. GNL is a company registered in England. TDB is a company incorporated in accordance with the laws of the Grand Duchy of Luxembourg. It is not entitled to, and does not, carry on any business, nor has it any presence, in the United Kingdom. Since 12 May 1983 GNL has

[1985] BCLC 293 at 296

been the registered holder of 150,000 shares in the company. On 13 November 1984 the company served notice on GNL under s 74. GNL replied by saying that it held the 150,000 shares for TDB 'for account client'. On 9 January 1985 the company served notice on TDB under s 74, but that notice was not replied to. GNL is a necessary party to the proceedings but, since it has duly complied with the notice served on it, no order for costs is sought against it. TDB has not provided the information required since, if it did so without the consent of its client, it would be subject to sanctions under the criminal law of Luxembourg. It now opposes this application for the same reason. It is implicit in the stance adopted by TDB that the consent of its client has been refused. It cannot be criticised for opposing the application. On the other hand, a continuation of the order will not oblige it to provide the information required. It was suggested that the order would put it in double jeopardy, but I do not think that that can be correct. Moreover, it is the client and not TDB who will suffer if the restrictions imposed by s 174 are continued.

Part IV of the Companies Act 1981 is headed 'Disclosure of interests in shares'. Sections 63 to 72 appear under the sub-heading 'Disclosure of interests in voting shares in public companies'. Section 73 requires every public company to keep a register for the purposes of ss 63 to 65. Subject to certain limited exceptions, the register is to be available for inspection by any member of the company or any other person in accordance with s 80. Sections 74 to 77 appear under the sub-heading 'Investigation by a company of interests in shares'. The marginal note to s 74 is 'Power of company to require information with respect to interests in its voting shares.' Subsection (1) is in these terms:

'Any public company may by notice in writing require any person whom the company knows or has reasonable cause to believe to be or, at any time during the three years immediately preceding the date on which the notice is issued, to have been interested in shares comprised in relevant share capital of that company to confirm that fact or (as the case may be) to indicate whether or not it is the case and, where he holds or has during that time held any interest in shares so comprised, to give such further information as may be required in accordance with subsection (2) below.'

Subsections (2) and (3) spell out the further information which the person to whom the notice is addressed may be required to give. No question arises under those subsections in this case. Subsection (4) provides that the notice shall require any information given in response to it to be given in writing within such reasonable time as may be specified in the notice. Subsection (5) throws you back to ss 66, 67 and 70 for the purpose of construing references to persons interested in shares and to interests in shares respectively. Those three sections, expressed with a particularity which was formerly characteristic more of a taxing act than the Companies Acts, and also sub-s (6) of s 74, suggest that Parliament intended to draw a very wide net when it comes to the persons who can be required to give information to the company.

The marginal note to s 77 is 'Penalties for failure to provide information under section 74'. Subsection (1) is in these terms:

'Where a notice is served by any company under subsections (1) and (2) of section 74 of this Act on any person who is or was interested in any shares

[1985] BCLC 293 at 297

in the company and that person fails to give the company any information required by the notice within the time specified in the notice, the company may apply to the court for an order directing that the shares in question shall be subject to the restrictions imposed by section 174 of the 1948 Act.'

Subsection (2) provides that an order can be made under sub-s (1) notwithstanding that the company is empowered by its constitution to impose similar restrictions itself. Subsection (3) enables the company or any person aggrieved by an order under sub-s (1) to apply for an order directing that the shares shall cease to be subject to the restrictions. Subsection (4) provides that certain of the consequential provisions of s 174 as amended shall apply in relation to any shares which are subjected to the restrictions imposed by that section by virtue of an order made under sub-s (1). Subsections (5) and (6) are in these terms:

'(5) Subject to subsections (6) and (7) below, any person who fails to comply with a notice under section 74 of this Act, or who, in purported compliance with such a notice, makes any statement which he knows to be false in a material particular or recklessly makes any statement which is false in a material particular shall be guilty of an offence and liable -

(a)     on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both; and

(b)     on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum or both.

(6) A person shall not be guilty of an offence by virtue of failing to comply with a notice under section 74 of this Act if he proves that the requirement to give the information was frivolous or vexatious.'

Subsection (7) provides that a person shall not be obliged to comply with a notice under s 74 if he is for the time being exempted by the Secretary of State from the operation of that section. I need not read or refer to any other provisions of the 1981 Act. I need not read s 174(2) of the 1948 Act. Shortly stated, the restrictions (a) preclude any transfer of the shares, (b) provide that no voting rights shall be exercisable, (c) preclude the issue of any further shares in right of them and (d) preclude the payment of dividends etc except in a liquidation.

TDB's primary contention is that the words 'any person' in ss 74(1) and 77(1) do not include a foreign corporation which cannot and does not carry on business in the United Kingdom and has no presence here of any kind. It is convenient to refer to such an entity or an individual having an equivalent status as a true foreigner. TDB's alternative and subsidiary contention is that the court ought not, in the exercise of its discretion, to continue the restrictions any longer.

Although this is an interlocutory application and there was not, before today, any agreement to treat it as the trial of the action, TDB's primary contention raises a question of statutory interpretation which, if it is decided in favour of TDB, will mean that the court has no jurisdiction to make the order sought. Accordingly, the question was as fully argued as it would have been at the trial of the originating summons. I have not found it at all a difficult one. The answer lies in basic principles which are either self-evident or appear from one or two leading authorities.

[1985] BCLC 293 at 298

Like counsel for the company, I start by asking myself this question. To what state of affairs is the company seeking to apply the provisions of ss 74(1) and 77(1) in the present case? The company is an English company, whose articles of association constitute a contract, of which the proper law is English, between the company and its members in respect of their ordinary rights as members. The member is GNL, which is itself an English company. The shares in the company, being transferable only upon a register kept in England, are property situated in England. So far, you would look in vain for any foreign element in the case. Such a thing only comes into it because GNL holds the shares and its contractual rights against the company for TDB, in other words as a trustee for a true foreigner. Nevertheless, the trust property being situated in England and the trustee being resident here, TDB's beneficial interest is also situated in England.

That is the state of affairs to which the application of the statutory provisions is sought. What then would be the effect of that application? By s 74(1) an English company would be permitted, in derogation from English contractual rights held by an English trustee of an English trust for the benefit of a true foreigner who holds them for somebody else, to require the true foreigner to tell it who that somebody is. By s 77(1) the court, on default, would be empowered to impose restrictions on the disposal and enjoyment of English shares which are held in the like manner. Upon what principle of statutory interpretation is it to be said that that application was not intended, merely because the person who is required to give the information is a true foreigner?

Counsel for TDB (Mr Crystal QC), submitted that in construing words such as 'any person' the rule is that, unless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to British subjects or to foreigners who, by coming to the United Kingdom, whether for a short or a long time, have made themselves subject to British jurisdiction. He said that a true foreigner was, by definition, someone who, never having come to the United Kingdom, has not made himself subject to British jurisdiction. He then submitted that the application of ss 74(1) and 77(1) to a true foreigner is neither expressly enacted nor so plainly implied that the courts must give effect to it.

Counsel for TDB's statement of the rule is taken from the speech of Lord Scarman in Clark v Oceanic Contractors Inc [1983] 1 All ER 133 at 139, [1983] 2 AC 130 at 145. It was there held that a foreign corporation had a sufficient tax or trading presence in the United Kingdom for it to be bound to operate the PAYE system in respect of certain of its employees whose remuneration was liable to tax under Schedule E. No English contractual or proprietary rights having been under consideration, it is evident that the state of affairs to which it was sought to apply the United Kingdom legislation in that case was of a very different order from that which has to be considered in this. The question whether the legislation did or did not apply to the foreign corporation depended entirely on whether it had a sufficient presence in the United Kingdom. That explains why Lord Scarman, having quoted passages from the judgments of James and Cotton LJJ in the bankruptcy case of Ex p Blain (1879) 12 Ch D 522 at 526, 531-532, expressed the general principle in the way that he did. But it clearly appears from the immediately following passages in the same two judgments that United Kingdom legislation will usually apply to a foreigner's rights under an English contract or interests in English property, even where he

[1985] BCLC 293 at 299

does not have and has never had an actual presence here. Thus James LJ said this ((1879) 12 Ch D at 526):

'English legislation has said that, if a debtor allows his goods to be taken in execution, certain consequences shall follow, and English legislation has a right to say that with regard to an English subject. But what right has it to say so with regard to a Chilean? No doubt it has a right to say to a Chilean, or to any other foreigner, "If you make a contract in England, or commit a breach of a contract in England, under a particular Act of Parliament a particular procedure may be taken by which we can effectually try the question of that contract, or that breach, and give execution against any property of yours in this country." But that is because the property is within the protection and subject to the powers of the English law.'

Cotton LJ said this ((1879) 12 Ch D at 532):

'As regards a British subject, whether he is here or not, he can be made bankrupt, if the Act of Parliament has declared that, in the events which have happened, he can be made bankrupt. But, as regards foreigners, there is prima facie no right to bind them if they are not here. I think, therefore, that the true interpretation of the general word "debtor" in the Bankruptcy Act is, a debtor subject to the English bankruptcy law. I say to the English bankruptcy law, and not to the English law generally, for this reason, that we are dealing with a question of bankruptcy; and it may be that there are English statutes which give our Courts power to deal with foreigners who are not here as regards matters which, according to all principles, ought to be adjudicated upon by our Courts, such as, for instance, questions relating to real property situate in England. Of course it is right that questions of title to such property should be adjudicated upon here, and there may well be English statutes giving our Courts power to deal with suits relating to the title to real property in England as regards aliens, and for the purpose of serving them.'

In my judgment, and subject to one point which I have yet to mention, those passages are, if authority is needed, enough to dispose of counsel for TDB's submissions in the present case. If the registered holder of the shares had been TDB and not GNL, the case would have fallen comfortably within the spirit of James LJ's observations. I do not see that it can make any difference if the foreigner is not the contracting party and the legal owner of the contractual rights and the shares, but only the equitable owner, particularly if the equitable interest is situated in England. Why should a true foreigner, while able to enjoy all the benefits of holding shares in an English company, be intended to escape the burdens? To adopt the words of Cotton LJ, I think that this is legislation which gives our courts power to deal with foreigners who are not here as regards these matters, being matters which, according to all principles, ought to be adjudicated upon by our courts. You can either say that his English contractual and proprietary rights give the true foreigner a notional or constructive presence here or, as I think would be more correct, that they render his actual

[1985] BCLC 293 at 300

whereabouts immaterial. Either way, the state of affairs to which it is sought to apply ss 74(1) and 77(1) in the present case is in substance entirely English.

I have yet to consider s 77(5), upon which counsel for TDB came in the end to place the greatest reliance. He submitted that the established rule that United Kingdom criminal legislation cannot usually have extra-territorial effect means that the words 'any person' in s 77(5) cannot include a true foreigner. He then said that those words must have the same meaning in ss 74(1) and 77(1) as well. Superficially, that has the appearance of a powerful argument founded on a fundamental principle of statutory interpretation, but a closer scrutiny convinces me that it fails. I am certainly prepared to accept, although I emphasise that I do not have to decide, that s 77(5) is limited as counsel for TDB contends. But, in considering whether ss 74(1) and 77(1) are to be similarly limited, you must look at the quality of the words on which the similarity is said to depend. As to that, it would be difficult to think of words more often used in provisions imposing penalties for criminal offences and, as such, less fitted to be words of art than 'any person'. I do not see that there is anything heretical in imputing to Parliament the twofold intention to include a true foreigner in ss 74(1) and 77(1) and to exclude him from s 77(5). The House of Lords did something of the sort in Hardwick Game Farm v Suffolk Agricultural Poultry Producers' Assocn [1968] 2 All ER 444, [1969] 2 AC 31, and I do not think that it makes any significant difference that their Lordships were there construing different sections of the same Act and not different subsections of the same section. In any event, I have to construe the material provisions of this particular Act. I find it quite impossible to impute to Parliament an intention that ss 74(1) and 77(1) should not apply to a true foreigner. Accordingly, and for reasons which broadly reflect the principal arguments of counsel for the company, I decide the primary question in favour of the company.

The subsidiary question is whether I ought, in the exercise of my discretion, to continue the restrictions any longer. Counsel for TDB (Mr Crystal QC) made a number of points here, but the only one which I need mention is that GNL became the registered holder of the shares in May 1983, that is to say more than 18 months before Suter plc began to build up its 14.1 per cent holding in the company. Counsel for TDB submitted that that shows that the company need have no fear that Suter is the beneficial owner of these shares. To that I would make two answers. First, it is perfectly possible that Suter has acquired the beneficial interest from somebody else and is now TDB's client. I do not say that it is likely to be so. I simply do not know. Nobody can know unless and until TDB's client authorises it to provide the information required. While the possibility exists, I do not think that it lies in the mouths of TDB and its client to complain if the restrictions are continued.

Secondly, and more important, the terms of s 74 do not impose any limitation on the power to require the specified information. Indeed, the clear purpose of Part IV of the 1981 Act is to give a public company, and ultimately the public at large, a prima facie unqualified right to know who are the real owners of its voting shares. I do not for a moment suggest that it is the function of the court under s 77(1) to affix a rubber stamp to every notice which is served under s 74. It would not, for example, act where the requirement to give the information was frivolous or vexatious; cf s 77(6). And there could well be many other circumstances where the exercise of a discretionary power would, on general principles, be inappropriate. On the other hand, given the clear purpose of the

[1985] BCLC 293 at 301

legislation, I reject the suggestion, if such it is, that the company must first show that it has some real ground for believing that the person interested in the shares may be someone who is seeking to build up a substantial holding in it.

In the present case I can see no ground on which I could properly refuse to exercise my discretion in favour of the company. It having now been agreed that the motion be treated as the trial of the action, I propose to make a final order directing that the shares shall be subject to the restrictions imposed by s 174.

Order accordingly.

Solicitors: Coward Chance (for the company); S J Berwin & Co (for the eighth and fifteenth respondents).

Evelyn M C Budd Barrister