§ On the Motion that the Lords' Amendments to this Bill be agreed to,
§ MR. SPOONER
said, that he rose to move as an Amendment, that the following words added in the Lords' Committee at the end of Clause 3, be disagreed from:And thereupon the said sum of £43,923 5s. 8d. shall be considered to have been duly divided among all classes of shareholders of the company.After detailing the circumstances connected with the Redpath frauds, which had led to the introduction of the present Bill into Parliament, he observed that to the Bill, as it had been introduced, no objection was taken by the shareholders, and that the words to which they were now opposed had been inserted in the Committee of the House of Lords after the preamble had been agreed to, and during that confusion which always took place among the parties when the clauses were being settled. He contended that the terms upon which the preference shareholders held their shares were, that they should receive a dividend of five per cent in perpetuity, to be paid annually, and that they were entitled to take out of the profits of the year five per cent per annum, upon the capital which they had invested, before any one else could receive anything. The effect of the words which he proposed to leave out would be to throw the preference shareholders 205 on a half-yearly division of dividend instead of upon a yearly division, and to hold them as having received, although in fact they had not received it, £2 10s. per cent out of the half-year's revenue up to December last, thus cutting down their claims against the revenue of the whole year from June to June, to £2 10s. per cent. He had no doubt they would be told that the Attorney General had sanctioned the proposed arrangement, but he (Mr. Spooner) looked upon the opinion of the Attorney General as being very much qualified by the expression in it, that the arrangement was to be carried out according to the existing rules which determined the mutual relations between the parties. Every one knew that a legal opinion depended very much upon the nature of the case submitted, and he should like to know whether the attention of the Attorney General had been drawn to the fact that the holders of these shares were to be entitled to 5 per cent "per annum "interest, or preference dividend in perpetuity. It was to those words "per annum" that he wished more particularly to call the attention of the House, and he maintained that if the directors chose, for the sake of convenience, to make up their accounts and to pay dividends half-yearly, that could in no away affect the rights of the preference shareholders to their 5 per cent per annum out of the profits of the year. At all events, if there were any doubts as to the rights of the preference shareholders, he urged that those doubts should be decided by a court of law, and that it was not for the House to interfere to settle the rights of contending parties, when the ordinary tribunals of the country were open to them, and were infinitely better calculated for the purpose than that House could by possibility be.
§ MR. TURNER
said, that he would second the Amendment considering that a principle of commercial honesty was involed in the question, which the House was bound to maintain, and if the words inserted by the House of Lords were allowed to remain, the honour of this country, with respect to fulfilling its engagements, would be at an end. When a railway company was not able out of the funds subscribed by the shareholders to complete its undertaking, the directors either borrowed money on debentures, or raised it in the shape of preference shares, as had been done in this case. The persons who lent their money upon that understanding were content 206 with a beneficial interest of 5 per cent, although the ordinary shareholders might receive a much larger amount of interest. In the first instance the debenture holders received the amount which they were entitled to upon what they had lent on a mortgage of the line, and the preference shareholders came after them with an equitable claim to receive the amount which had been guaranteed to them in the event of there being property to that amount. This was not the first time that a railway company had attempted to carry a measure of this kind, but he thought that it was the duty of the House to oppose a system which he believed to be antagonistic to the principles of commercial honour.
§ MR. NEWDEGATE
said, the question was whether there was any profit to which the preference shareholders were entitled; if he voted for the Amendment it would be because he thought the point was one of law, which the Courts ought to decide, but he thought the House ought not to sanction any principle which would increase the power of the preference shareholders. The officer through whose misconduct this loss occurred, was their officer as much as that of the ordinary shareholders, and they had the same voice in the appointment. It was rather the ordinary shareholders who required protection.
said, that as Chairman of the Committee to which the petition of the preference shareholders had been referred, he wished to state that the case submitted to them was this,—whether the sum of money required to make up the deficiencies occasioned by Redpath's frauds should be paid out of the capital or out of the dividends that were then due, those dividends being sufficient at the time to pay the whole sum. The Committee decided that, the frauds being in the nature of a great calamity which had occurred to the company, it was fair, as the company was in some respects responsible for the misfortune which had occurred, that the loss ought to have been paid out of the dividends then due. Since that period a difference had arisen with respect to a second half-year's dividend which had come into hand. The company had thus a whole year's dividend available, so that the case was somewhat altered from what it had been two months ago, when the Committee had decided that the sum should be paid out of the dividend then in hand. It was under these circumstances that the 207 words which it was now proposed to strike out, had been added to the Bill in the Committee of the other House. If the second dividend had not come in, he believed the Bill would have remained as it was sent up from the House, and that in that state it would have effected the object and purpose which both Committees had in view; but he believed he might state that both the Committee of that House as well as of the House of Lords, had been unanimous on the subject of the equal liability of the preference shareholders with the ordinary shareholders in reference to the losses occasioned by the recent frauds. A new question had now arisen—whether the preference shareholders had a right to consider, that as the company had now a sufficient sum in hand to pay this expense, and also to pay them their preference sum, they were entitled to receive that sum. The practice of the company was to pay the preference dividends half-yearly. If it could be shown that the preference shareholders were paid once every year, there would not be any doubt that they were entitled to what they now claimed. But the question now was, whether that sum should be paid, as the Committee had intended, out of the first half-year's dividend, or whether the altered state of circumstances should compel the directors to pay it out of the whole of the previous year. He thought the strongest argument against that course was that the preference shareholders would then escape being subject to the payment of any of the loss which their directors had incurred—those directors having been elected in a great measure by preference shareholders. Though the case had somewhat altered since it left the Committee, he should concur in the alteration made by their Lordships, because he believed it carried out what was the original intention of both Committees.
§ SIR JAMES GRAHAM
inquired whether the preference shareholders had been heard by counsel before the Committee?
said, he entirely concurred in what appeared to be the general opinion of the House. There was not one word in the preamble of the Bill to justify the House interfering in any manner between different classes of shareholder. The objects of the Bill were first to authorise the directors to recognise the fietitious shares created by Redpath; secondly, to 208 empower them to buy these up; and thirdly, to do so out of the sum then in hand. It did not attempt to decide anything as to the rights of the different shareholders to that sum. Suppose that a great calamity had occurred, such as the fall of a tunnel, would the ordinary shareholders have a right to come to the House to force the preference shareholders to contribute? Whatever were the rights of the preference shareholders, Parliament should not interfere to alter them. When the Bill first came before the House, only a half-year's dividend was in hand, but the preference shareholders maintained that they had a right to take the income of the whole year, and that they should be applied, first, in payment of the losses incurred in the year; secondly, in payment of the dividends on the preference shares; and, thirdly, in payment of the dividends of the ordinary shareholders. If they were wrong in that conclusion, the clause was unnecessary; and if they were right, he did not think the House ought to interfere to diminish the value of their property, and of preference shares in general.
§ MR. J. C. EWART
thought that the Lords' Amendment, if carried, would inflict a serious blow on the commercial honour of the country. It had always been considered that the preference shareholders were not liable to any losses occasioned by frauds committed on the company with which they were connected, and the proposed legislation was calculated to depreciate the value of all preference shares.
§ MR. W. BROWN
said, that preference shares had generally been created when railway companies were in difficulties, and it was only equity and justice, when persons had lent their money to a company in order to enable the ordinary shareholders to carry out the scheme and save the property, perhaps, under a compact that they should receive a certain amount of interest, that that compact should be fulfilled. It would be a great blow to commercial honour to attempt to do anything against the rights of the preference shareholders.
MR. BECKETT DENISON
said, being Chairman of the Great Northern Railway Company, he desired to say a few words. The question for consideration was whether the Amendment of the Lords ought to stand part of the Bill. The Committee of the Lords had inserted the words in question for the purpose, but only for the purpose, of making clear an opinion 209 previously expressed by the Common's Committee, but which might have given rise to much litigation, if allowed to remain in the state in which it stood when the Bill went to the other House. The case of the preference shareholders was fully discussed before the Common's Committee, and they were unanimously of opinion that the preference shareholders had no claim for exemption from their share of the loss occasioned by Redpath's frauds. These shareholders petitioned the other House, and were there represented by able counsel, but after hearing both sides, the Lords came to the conclusion that the decision of the Commons ought to be affirmed. The words under discussion were proposed for the purpose of settling the whole question at once and for ever, and in order to prevent litigation. They were opposed by counsel on the part of the preference shareholders, but the Committee agreed to them with the object which he had stated. During the progress of the Bill through the House of Lords, Lord St. Leonards and Lord Wensleydale took the side of the preference shareholders. Lord St. Leonards did not express any strong opinion that the preference shareholders had a clear right to the advantage claimed for them; but his object was to leave out of the Bill the very words which were at that moment under the consideration of the House of Commons, so that the rights of the parties might be tried in a court of law. Two noble Lords, who had been members of the Lord's Committee, had upon the same occasion addressed the House, and stated that their object in supporting that clause, with the additions, was to prevent future litigation. The noble Lord the President of the Board of Trade had expressly declared that he thought that was the most judicious course which could be pursued. The intention originally entertained by the Directors was, that the amount of the frauds should be capitalized, as it was called, and that the loss should be borne by the unprotected shareholders; but the noble Lord the Chairman of the Lords' Committees said that he would not consent to any arrangement of the sort, and that he would insist on the money being at once paid out of the profits of the company. The consequence was, that under the advice of the Attorney General, a Bill was brought forward and passed through both Houses, under which it was enacted that the amount of the frauds should be paid out of the earnings of the 210 half-year, and that whatever was left of those earnings should be distributed among the proprietors, according to the priority of their claims. That was the purport of the Bill which had been passed by the House of Commons. When the Bill went before the House of Lords, doubts were expressed as to whether it would ensure the attainment of the object for which it had been framed, and prevent litigation. The consequence was, that the words at present in dispute were added by the House of Lords to the Bill; and on a division in the Lords, that Amendment was carried by 43 votes against 7. The question at present before the House of Commons was nothing more or less than a provision which should make that clear respecting which some doubts had been expressed, but would not in any way alter the character of the Bill. That was the state of the case between the House of Lords and the House of Commons. It appeared to him that a misunderstanding prevailed with respect to the rights of the preference shareholders. It was admitted that those parties were not in the same position as guaranteed shareholders. The meaning of the right which they enjoyed was that if there was a profit beyond all the expenses incurred in the management of the railroad, they should be paid the amount of their interest before the general shareholders. He was glad to find that that statement was generally admitted; that it was, in fact, admitted that the preference shareholders were not guaranteed shareholders. The simple question the House had to consider was, whether the preference shareholders were in such a position that they could not only claim their portion of the balance for one half-year after the charge on account of the frauds had been met, but as much of the profits of the succeeding half-year as would be required for the full payment of their demands. A good deal had been said about their being entitled to payment from June to June; but all railway companies began their year's accounts in January, and ended them in December. The legal question raised is, whether the preference shareholders could put their hands on any portion of the earnings of the year 1857, and claim out of those earnings the sum which was not paid to them out of the profits of the last half-year of the year 1856. He submitted to the House with some confidence that if the preference shareholders were invested with such a right, they would clearly be, for all practical purposes, guaranteed 211 shareholders. Nobody denied, that they were partners in the concern. They assisted at the meetings of the company; they had the same rights at those meetings as the other shareholders; and they took away a large portion of the profits. There could be no doubt but they were shareholders, and the question the House had to decide was whether, because they were preference shareholders, they could claim out of the earnings of the first half-year of 1857 the sum which they did not receive out of the earnings of the last half-year of 1856. The Committees of both Houses of Parliament, and the Attorney General, said that they were not entitled to make up a deficiency in their receipts during one year by laying hold of the earnings of the year following. The object of those who represented the preference shareholders upon that occasion was to let the question go before a court of law. But if the present clause were rejected, and the matter was to be left to the decision of a court of law, his hands as chairman of the company would be tied until the court should have pronounced its judgment, and in the meantime he could not distribute any portion of the earnings of the company. The amount in dispute was between £80,000 and £90,000, and until a court of law should have pronounced their decision how that money was to be paid—a decision which might not be given before Christmas next—the distribution of the profits of the company must be suspended. There were widows and orphans who depended for their livelihood on the regular payment of the dividends of the company, and it would be a great hardship on them if they could not be paid at once. He hoped the House would not subject the shareholders to so great an inconvenience; and he respectfully submitted that the best course they could then adopt would be to agree to the words added to the Bill by the Lords.
§ MR. SCHNEIDER
said, he wished to ask the hon. Gentleman whether the preference shareholders had not a contract by which they were entitled to the payment of dividend from the month of June in one year to the same month in the year following, so that they ought to receive out of the profits of the first half of this year the annual per centage they had not received out of the profits of the second half of last year?
MR. BECKETT DENISON
said, that was precisely the question which would 212 have to be tried by a court of law, and his opinion could be worth nothing upon such a point. He could state, however, that there was no contract, as far as he was aware, specifying that the interest on the money lent by the preference shareholders should be paid between the month of June in one year and the same month in the year following.
§ MR. LOWE
said, he had given this question, as it was his duty to have done, a consideration commensurate, he hoped, with its importance, and he would briefly state to the House the conclusion at which he had arrived. The Bill which had been introduced into that House was obviously a necessity. It was necessary for the purpose of giving validity to the spurious stock, and enabling the company, by giving them power to purchase and extinguish it at the same time, to keep their stock within the limits assigned by their Act of Parliament. But the Committees of the two Houses of Parliament, to which the measure had been referred, had assumed powers beyond those original objects—and because they had become, as lawyers called it, seised of the subject, had undertaken to determine by whom the loss in that case should be borne, whether by the ordinary shareholders exclusively, or by the preference as well as by the ordinary shareholders. They had decided the Question in favour of the ordinary shareholders, and against the preference shareholders. The question was whether they had been right in so deciding, or whether, even supposing their decision might be thought an erroneous one, the House ought to overrule that decision which had been given after a full consideration of the case. He humbly thought, after having bestowed upon the matter all the attention in his power, that the House was not bound by the decision of either of those Committees, and that it was competent for them to entertain the question. If that were a subject which had been legitimately brought before the Committees of the two Houses, he would not be so rash as to impugn their decisions upon a point which they must have had a much better opportunity than the House of duly considering. But if a Committee went rather beyond their jurisdiction, as it seemed to him that each of those Committees had done in that instance, he believed it was competent for the House to enter into the question whether the Committee had been right; and if it should be held that the Committee had done wrong, to undo that 213 wrong. How did the matter at present stand? It was not denied that there had been no difference of opinion between the Committee of the House of Lords and the Committee of the House of Commons in that case, and that all that the Committee of the House of Lords had done by the Amendment was to give effect, by more explicit language, to the decision of the Committee of the House of Commons. But he confessed that after the best consideration he had been able to give to the subject, it appeared to him that the Committees of the two Houses had fallen into an error in entering at all into that matter, and that they ought not to have undertaken to decide who were the parties, whether the ordinary shareholders, or the preference shareholders, by whom that loss should be borne, but ought to have left that point to the decision of a court of law. The question at issue was, whether the preferred shareholders had a right to be the first parties paid out of the whole sum to be applied for dividend during a period of twelve months; or whether they had that priority of right with respect to that sum only which was to be applied for dividend during a period of six months. That was a question, he apprehended, which should be determined not by the practice of any railway company, but by the legal instruments under which the two classes of shareholders held their rights. It was properly and strictly a question for a court of law, and he hoped that the House would not deprive any individuals of their right to appeal on a question of law to the constituted tribunals of the country. By disagreeing to the Amendment of the Lords, the House would not in any way be prejudging the point in dispute in favour of either class of shareholders; but would leave them to fight the matter out before the legitimate tribunals, and that, he apprehended, was the proper course for the House to pursue. He should humbly submit to the House that the two Committees were in error in supposing that they had a right to exercise a jurisdiction over the property of the shareholders of the company. It was said, however, that no dividend could be paid during the whole of this year, if the Bill were not passed. He thought that was exceedingly probable, because, until it should be known who were the parties entitled to the money, it was impossible that, as far at feast as regarded the sum in dispute, it could be paid away. But if the view he had submitted to the House was a 214 just one, and if by the passing of the Bill those preference shareholders would be deprived of what they believed to be their rights, without being allowed to have recourse to those courts of law which ought to be free to all her Majesty's subjects, he submitted that it was not for the House to allow the inconvenience to which he alluded to stand in the way of the attainment of justice. But he had further humbly to express his belief that if the House should dissent from that Amendment, it would be competent to the House of Lords, if they should think fit, to introduce into the Bill any clause they might consider necessary for the purpose of obviating any such inconvenience as that pointed out by the hon. Gentleman, the chairman of the company. Under these circumstances he thought the House would act wisely in rejecting this Amendment of the Lords.
said, he could not quite agree with the arguments put forward by his right hon. Friend who had just addressed the House. It appeared to him that the issue then before them was one of the narrowest description. The question they had to consider was whether the Amendment of the Lords so altered the scope and purport of the Bill that the House would be justified in withholding from it their assent. Now, it appeared to him that their Amendment would lead to no such result. If the Amendment had a tendency to throw on the preference shareholders, as the hon. Member for North Warwickshire assumed that it would do, a liability to which they had not previously been subjected, the right hon. Gentleman, Mr. Speaker, would not have allowed such an Amendment to appear on the notice paper; because it was one of the best established rules of the House that the Lords should not be allowed to extend the liability which a measure sent up from the Commons would impose. The hon. Member for North Warwickshire said that the preference shareholders had acquiesced in the Bill which had passed through the House, and only objected to the Amendment introduced into the measure in the House of Lords; and he (Mr. FitzRoy) believed that statement was perfectly correct, for a petition from the preference shareholders, which he held in his hand, showed that they perfectly understood the liability to which the Bill subjected them. Moreover, the same objection as was now raised to the Amendment of the Lords was discussed before the Committee of the Commons, as 215 the Attorney General and another learned counsel bad expressed their opinion that it was just and right that the losses occasioned to the company by the frauds and forgeries of Leopold Redpath should be borne by all classes and ranks of the shareholders. But his right hon. Friend the Vice President of the Board of Trade said that the Committees of the two Houses, in deciding on the rights of the preference shareholders, had exercised an authority which they were not entitled to assume. The preference shareholders, however, had acquiesced in the Bill as sanctioned by the two Committees, and had been perfectly content to abide by its provisions; and that Bill would throw upon them precisely the same liability as the Amendment of the Lords to which they at present objected. If the Committee of the House had gone, as staled by his right hon. Friend, beyond the limits of its legitimate jurisdiction in preparing such a measure, the proper time for objecting to the course it had pursued was during the progress of the Bill through the House. It was not for them to attempt to determine at that moment whether the decision of the Committees of both Houses had been right or wrong. He would not give any opinion on the merits of the question, but all he said was that a similar provision to that contained in the Amendment had been inserted, or had been meant to be inserted, in the Bill which had passed through the House of Commons; and that being the case, he did not think the House could then reject the clause.
§ MR. SPOONER
said, it was a mistake to suppose that he had stated that the preference shareholders had not objected to the Bill which had been sanctioned by the Committees of the two Houses. All he had said, or at least all he had meant to say was, that, as he had been advised those shareholders objected to the Amendment in the Bill, because they had been informed that without it their rights would remain unaffected by the measure, am could only be decided by a court of law.
§ MR. BRISCOE
said, he thought the House and the preference shareholders in the Great Northern Railway Company were much indebted to the right hon. Gentleman (Mr. Lowe) for his clear statement, which would enable hon. Members to arrive at a wise and just conclusion on this subject The question was one of great importance and they should be careful not to establish a precedent which might shake the 216 confidence of the public in the value of guaranteed and preference shares. That House was not committed to the clause in the form in which it had been sent down from the House of Lords, and he hoped the House of Commons would not consent to become the mere registrars of the opinions of the other House. He would therefore give his support to the Amendment of the hon. Member for North Warwickshire.
§ MR. P. W. MARTIN
was understood to say that the question raised during this debate had not been discussed by the Committee of that House, who were of opinion that the matter did not come within their jurisdiction. He had wished to put some questions to the witnesses on the subject, but was not permitted to do so.
The question was then put by Mr. SPEAKER, that the House should disagree to the Lords' Amendment, and the right hon. Gentleman declared that he thought the "ayes" had it.
MR. BECKETT DENISON
said, he perceived that there would be no use in putting the House to the trouble of dividing. The general sense of the House was evidently opposed to the clause, and he felt bound to bow to their decision, however much he might regret it.
Motion agreed to.
Committee appointed, "to draw up Reasons to be assigned to the Lords for disagreeing to the Amendment to which this House hath disagreed:"—Mr. SPOONER Mr. HEADLAM, Mr. WILLIAM BROWN, Mr. NEWDEGATE, Mr. LOWE, and Mr. BRISCOE:—To withdraw immediately; Three to be the quorum.
§ Reason for disagreeing to Lords' Amendment reported and agreed to;—to be communicated to the Lords.