3PLR – KNIGHTSBRIDGE ESTATES TRUST, LIMITED V. BYRNE AND OTHERS

POLICY, PRACTICE AND PUBLISHING, 3PLR, LAW REPORTS

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KNIGHTSBRIDGE ESTATES TRUST, LIMITED

V.

BYRNE AND OTHERS

(TRUSTEES OF ROYAL LIVER FRIENDLY SOCIETY)

HOUSE OF LORDS

1940 April 2, 3, 4, 22.

3PLR/1940/2 (HL)

 

 

CITATIONS

BEFORE THEIR LORDSHIPS:

VISCOUNT MAUGHAM

LORD ATKIN

LORD WRIGHT

LORD ROMER, and LORD PORTER.

REPRESENTATION

  1. M. Gover K.C. and Wilfrid M. Hunt for the respondents.

K.C.H. B. Vaisey K.C. and J. H. Stamp for the appellants.

Solicitors for appellants: Clifford-Turner & Co.

Solicitors for respondents: Sharpe, Pritchard & Co., for Bremner, Sons & Corlett, Liverpool.

 

MAIN ISSUES

REAL ESTATE LAW:- Mortgage – Real estate – Demise for long term – Covenant for repayment by eighty half-yearly instalments – Rule against perpetuities – Implication for equity of redemption – Whether a mortgage of real property is a “debenture” – Companies Act, 1929 (19 & 20 Geo. 5, c. 23), ss. 74, 380.

SUMMARY AND HISTORY

The appellants in 1931 mortgaged their freehold properties to the respondents to secure a loan of 310,000l. By the deed the appellants covenanted to repay the money so borrowed with interest by eighty half-yearly instalments. By clause 2 of the deed the appellants demised the mortgaged land to the respondents for a long term of years with the usual proviso for cesser. A few years later the appellants, being desirous of redeeming the mortgaged property by the repayment of the principal sum borrowed, notwithstanding the stipulation contained in the deed as to the repayment by eighty half-yearly instalments, sought a declaration that they were so entitled to redeem at any time by giving the usual notice:-

 

Held, (1.) that the mortgage was a “debenture” within s. 74 of the Companies Act, 1929, having regard to the definition in s. 380, and therefore was not rendered invalid by reason of being redeemable only after forty years; (2.) that the rule against perpetuities has no application to mortgages; and (3.) that the appellants were not entitled to the declaration claimed.

 

Decision of Court of Appeal [1939] Ch. 441 affirmed.

 

APPEAL from a decision of the Court of Appeal (1), varying a decision of Luxmoore J. (2)

 

The question at issue was whether the appellants were entitled to redeem on the usual notice a mortgage dated November 6, 1931, and made between the appellants as borrowers, and the respondents as mortgagees, notwithstanding a provision in the mortgage for repayment by eighty half-yearly instalments of which the last would not fall due till November 6, 1971. It was claimed by the appellants, and denied by the respondents, that the attempt to postpone the right of redemption for a term of forty years constituted an illegal clog upon the equity of redemption. The appellants consequently claimed a declaration that, notwithstanding the provisions of the mortgage, they were entitled on the usual notice to redeem the mortgage upon payment of the principal money secured thereby with interest to the date of redemption and the proper costs of the respondents thereunder.

            (1) [1939] Ch. 441.; (2) [1938] Ch. 741.

 

In addition to contesting the appellants’ claim on general grounds, the respondents pleaded that the mortgage was a debenture within the meaning of s. 74 of the Companies Act, 1929, and was therefore exempt from the equitable rule against the clogging of an equity of redemption.

 

Luxmoore J. held that the provision in the mortgage deferring redemption for a period of forty years, taken in conjunction with various clauses in the deed which he regarded as unusual and oppressive, was unreasonable, and constituted an unlawful clog upon the right of the appellants, who were therefore entitled to redeem the mortgage on the usual notice. Luxmoore J. further held that the rule against perpetuities had no application to mortgages, and, further, that a common mortgage of freeholds was not a debenture within the meaning of s. 74 of the Companies Act, 1929.

 

The respondents appealed to the Court of Appeal, where it was held that as the mortgage represented a commercial agreement between two important corporations experienced in such matters, the provision for repayment by instalments and the other terms of the mortgage were open to no objection such as to justify the interference of the Court. The Court followed Luxmoore J. in holding that the rule against perpetuities has no application to mortgages, and expressed no opinion whether the mortgage was a debenture within s. 74 of the Companies Act, 1929.

 

The Knightsbridge Estates Trust, Ld., appealed to this House.

 

  1. B. Vaisey K.C. and J. H. Stamp for the appellants.

The question is whether the appellants can claim now to redeem the mortgage which by its terms is not redeemable till the year 1971. Such a postponement of the right to redeem is, we submit, invalid, for a mortgage must always be redeemable within a reasonable time. Here the equity of redemption is unduly clogged. Moreover, the effect of holding the parties to their bargain has the consequence of sterilizing much property in the west end of London for nearly forty years – a serious burden wholly out of proportion to the necessities of the case. In Teevan v. Smith (1) Sir George Jessel M.R. said that “although the law will not allow a mortgagor to be precluded from redeeming altogether, yet he may be precluded from redeeming for a fixed period, such as five or seven years” – language which shows that he would not have regarded forty years as reasonable. The same view was taken by Romer J. in Biggs v. Hoddinott. (2) In Morgan v. Jeffreys (3) it was held that a proviso against redemption for twenty-eight years exceeded all reasonable limits and could not be enforced; and in the later case of Fairclough v. Swan Brewery Co., Ld. (4), the Judicial Committee laid it down that equity will not permit any device or contrivance to prevent or impede redemption unduly: see also the observations of Lord Parker of Waddington in Kreglinger (G. & C.) v. New Patagonia Meat, etc., Co. (5).

 

In Davis v. Symons (6) Eve J. held that the postponement of redemption for twenty years, together with certain other provisions which made the policies mortgaged in effect irredeemable, was a clog on the equity, and the mortgagor was held entitled to judgment in an action for redemption.

 

As was said by Lord Macnaghten in Noakes & Co., Ld. v. Rice (7), “redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself. And it is, I think, as firmly settled now as it ever was in former times that equity will not permit any device or contrivance designed or calculated to prevent or impede redemption.”

(1) (1882) 20 Ch. D. 724, 729.; (2) [1898] 2 Ch. 307, 311.; (3) [1910] 1 Ch. 620.; (4) [1912] A. C. 565.; (5) [1914] A. C. 25, 49, 52, 53.; (6) [1934] Ch. 442.; (7) [1902] A. C. 24, 30.

 

In Bradley v. Carritt (1) Lord Macnaghten, referring to Biggs v. Hoddinott (2) said that “it purported to decide that a mortgage may be made irredeemable for a reasonable period.” Here the period is not reasonable. As is said in Halsbury’s Laws of England, vol. xxv., p. 160: “If, again, it is provided that the right [to redeem] shall not be exercised for a period which the Court considers unreasonable, the restriction is invalid, not on the ground of perpetuity, but as a clog on the equity of redemption.” With regard to the suggestion that the mortgage is a debenture and so not subject to the rules relating to mortgages, we submit that an ordinary mortgage of land, such as this is, is not a debenture. A mortgage cannot be made irredeemable. There is an essential difference between debentures and mortgages.

 

[LORD PORTER. Debentures are usually in a series.]

 

[VISCOUNT MAUGHAM. There may, however, be a single debenture.]

Sect. 73 of the Companies Act, 1929, presupposes a register of debentures. It deals with debentures in the limited sense of that term; and it does not include a mortgage on land which is dealt with by s. 89. In the group of sections of the Act “debenture” has the limited meaning usually attached to that word; it is entirely inappropriate to a freehold mortgage.

 

  1. M. Gover K.C. and Wilfrid M. Hunt for the respondents.

 

[VISCOUNT MAUGHAM. We only desire to hear you on the question whether the document we are considering is a debenture or not.]

 

We submit that it is. If the appellants had issued six documents in the same form as the present one, there could be no difficulty in describing each as a debenture. Sect. 74 of the Companies Act, 1929, clearly applies to a freehold mortgage. It has been said that as it appears in a fasciculus of sections headed “Special Provisions as to Debentures,” and is followed by another group headed “Registration of Charges with Registrar of Companies,” this document      cannot be termed a debenture, but it has been overlooked that in the Act which originally introduced the provisions of s. 74 – the Act of 1907 – it was part of a fasciculus headed “Mortgages and Charges.” In the present fasciculus beginning with s. 79, it is obvious that a series of debentures or a single debenture creating a charge are included.

(1) [1903] A. C. 253.; (2) [1898] 2 Ch. 307.

 

  1. B. Vaisey K.C. in reply. The whole of Part II. of the Act of 1929 is dealing with the capital of the company, either of shares or debentures, and is not dealing with an ordinary mortgage of land. Moreover, the document under consideration is not framed in the form of a debenture. Throughout the whole Act the word “debenture” has attached to it its ordinary meaning.

 

The House took time for consideration.

  1. April 22. VISCOUNT MAUGHAM.

My Lords, this appeal raises the question whether the appellants, who are mortgagors, are entitled to redeem on the usual notice a mortgage dated November 6, 1931, made between the appellants of the one part and the respondents (who are trustees of the Royal Liver Friendly Society) of the other part, notwithstanding a provision in the mortgage for repayment of the loan of 310,000l. by eighty half-yearly instalments. It was not in dispute before your Lordships that on the true construction of the mortgage the appellants were not entitled to pay off the loan otherwise than by the instalments and at the times provided in the mortgage, so that the appellants would not be entitled to the free enjoyment of their property for forty years except by a voluntary concession from the respondents.

 

Three questions of law emerged on the argument before your Lordships which may be stated as follows:-

(1.)    Whether the provisions in the mortgage which purported to postpone for so long a period the right of redemption were not void in equity as preventing redemption for an unreasonable length of time, having regard to certain circumstances which, it was alleged, made the provisions as to such postponement oppressive on the appellants and unnecessary for the protection of the respondents?

(2.)    Whether any of the provisions of the mortgage were invalidated by the rule against perpetuities?

(3.)    Whether the mortgage is a debenture within the meaning of s. 74 of the Companies Act, 1929, having regard to the definition contained in s. 380 of that Act?

 

The first two questions raised the points on which the appellants relied, the third was a contention on the part of the respondents, who claimed that s. 74 of the Act in effect removed any doubt as to the validity of the provisions postponing the right of redemption.

 

The action was heard by Luxmoore J. who held by his judgment dated April 13, 1938, that the provision in the said mortgage deferring redemption for a period of forty years, taken in conjunction with clauses in the deed which he regarded as unusual and oppressive, was unreasonable and constituted an unlawful clog upon the right of the appellants to redeem the mortgage and that the appellants were entitled to redeem the mortgage on the usual notice. The learned judge further held in favour of the respondents that the rule against perpetuities has no application to mortgages and in favour of the appellants that a common mortgage of freeholds is not a “debenture” within the meaning of s. 74 of the Companies Act, 1929.

 

The respondents’ appeal to the Court of Appeal (Greene M.R., Scott L.J. and Farwell J.) was allowed. Judgment was delivered on behalf of the Court by the Master of the Rolls. It was thereby held that while the Court would not enforce any provision in a mortgage which was unconscionable or which operated to prevent the mortgagor from exercising his right of redemption after the specified date for redemption, or which rendered the right of redemption illusory, the Court is not further concerned with the question whether the terms of the mortgage are reasonable and a provision that the date for redemption shall be postponed for a given period however long is not on that ground alone unenforceable; and that in the present case, where the mortgage represented a commercial agreement between two important corporations, experienced in such matters, the provision for repayment by instalments and the other terms above mentioned were open to no objection which justified the interference of the Court. The Court also held that the rule against perpetuities has no application to mortgages, but expressed no opinion as to whether the mortgage is a debenture for the purpose of s. 74 of the Companies Act, 1929.

 

In the course of the able arguments for the appellants it became manifest that logically the first matter to be determined was the third question above stated, namely, the question whether s. 74 of the Companies Act, 1929, applied. That section is in the following terms: “A condition contained in any debentures or in any deed for securing any debentures, whether issued or executed before or after the commencement of this Act shall not be invalid by reason only that the debentures are thereby made irredeemable or redeemable only on the happening of a contingency, however remote, or on the expiration of a period, however long, any rule of equity to the contrary notwithstanding.”

Sect. 380 of the Act so far as relevant provides: “In this Act, unless the context otherwise requires, the following expressions have the meanings thereby assigned to them (that is to say):-

“‘Debenture’ includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not.”

 

If then the mortgage was a debenture within s. 74 it was difficult to see how the appellants could succeed on the main point. Your Lordships, therefore, after fully hearing counsel for the appellants, thought it right to call on counsel for the respondents on the question arising under s. 74, and eventually did not think it necessary to call on the respondents for an argument on either of the other two points which I have stated. In these circumstances it would not be right for me to express any opinion on the first question, and I wish to reserve full liberty to consider that question if it should arise in a case where s. 74 did not apply. On the other hand I must make some observations on the second question, as to the application of the rule against perpetuities, a matter as regards which none of your Lordships felt any doubt that the decisions of Luxmoore J. and the Court of Appeal were right.

 

My Lords, the judgment of Luxmoore J. contains an elaborate statement of the history of s. 74 and of the reasons which led him to the conclusion that the section did not apply to the mortgage in the present case. Unfortunately his attention does not seem to have been called to the Companies Act, 1928, which was not a consolidating but an amending Act, and he accordingly thought that the extended definition of the word “debenture” was first found in the Companies Act, 1929, which, as he justly observed, was a consolidating statute. In fact the extension of the definition is to be found in the Second Schedule to the Act of 1928 where the added words are to be found as an amendment of s. 285 of the Companies Act, 1908. (See s. 99 of the Act of 1928.) The consolidating Act of 1929 reproduced as part of the consolidation the amended definition of the word debenture, and there is, therefore, no room for any such presumption excluding an amendment of the existing law by a consolidating statute as the learned judge relied on.

 

The position therefore is as follows: The substance of s. 74 of the Companies Act, 1929, was first found in the Companies Act, 1907, s. 14, where it was prefaced by the words “for removing doubts it is hereby declared that,” etc. There was no definition of the word “debenture,” and there is strong ground for thinking that, whatever be the ambit of the word, it did not in that section include an ordinary mortgage of land. The consolidating Act of 1908 reproduced the provision of s. 14 of the Companies Act, 1907, omitting the introductory words. It was in the exact terms of the present s. 74 of the Companies Act, 1929. The definition clause (s. 285) stated that “‘debenture’ includes debenture stock,” which perhaps made it even clearer that “debenture” did not include a mortgage of land in ordinary form. But the amending Act of 1928 contained the provision that at the end of the definition of “debenture” in s. 285 of the Companies Act, 1908, “there shall be added the words ‘bonds and any other securities of a company whether constituting a charge on the assets of the company or not.'”

 

It is perhaps worth pointing out that the words “unless the context otherwise requires,” which we find in the consolidating Act of 1929, are not to be found in the amending Act of 1928. I attribute little weight to this fact, for in my opinion some such words are to be implied in all statutes where the expressions which are interpreted by a definition clause are used in a number of sections with meanings sometimes of a wide and sometimes of an obviously limited character.

 

On the other hand I think due weight ought to be attributed to the words “otherwise requires” in the Companies Act of 1929, and it is incumbent on those who contend that the definition does not apply to s. 74 to show with reasonable clearness that the context does in fact require a more limited interpretation of the word “debenture” than s. 380 has assigned to it.

 

If we begin by asking what the word “debenture” means, apart from any definition, the reply must be that it has no precise meaning. Chitty J. observed in the case of Levy v. Abercorris Slate and Slab Co. (1), that the word “means a document which either creates a debt or acknowledges it, and any document which fulfills either of these conditions is a debenture.” An interesting extract from Skeat’s Etymological Dictionary (1882) will be found in a footnote to the case (p. 264). Sir Nathaniel Lindley had previously stated simply, “What the correct meaning of ‘debenture’ is I do not know”: British India Steam Navigation Co. v. Inland Revenue Commissioners. (2) In Lemon v. Austin Friars Investment Trust, Ld. (3), the same ignorance was professed in the Court of Appeal.

Warrington L.J. in particular, after observing that it had been said “by a wiser man than himself” that it was impossible to give anexhaustive definition of the word “debenture,” went on to remark that he did not propose to incur the reproach of venturing where wise men fear to tread. The text books are agreed at least in this that no accurate definition of the word can be found. I think it sufficient to cite Buckley on the point (11th ed., p. 174). It is clear, therefore, that it was desirable to insert in any consolidation of the Companies Acts a definition of the word.

(1) (1887) 37 Ch. D. 260, 264.; (2) (1881) 7 Q. B. D. 165, 172.; (3) [1926] 1 Ch. 1

 

We must next ask ourselves whether there was any reason for limiting s. 74 of the Act of 1929 to debentures of a series issued to a number of subscribers in one of the forms now in common use or in some such way.

 

The reason for the section is explained in the note to the section in Buckley, 11th ed., pp. 154-5. Enormous sums had been borrowed by companies formed under the general Companies Acts on debentures and debenture stock the principal of which was (in terms) either not repayable at all or only in certain specified events. Doubts had been expressed whether these restrictions on the right of redemption were valid ( Jarrah Corporation v. Samuel (1); In re Southern Brazilian, etc., Timber, Wood Paving, etc., Co., Ld. (2)), and it seemed desirable to remove these doubts by the Companies Act, 1907. The equitable rule was based on the hypothesis that in a contract for a loan the borrower is not usually contracting on equal terms with the lender. I find the reason quaintly stated in the case of Floyer v. Lavington (3), by Sir Joseph Jekyll as counsel in a case heard by Cowper L.C. He explained the ground for holding that a mortgage cannot be rendered irredeemable thus:

“As the borrower is commonly necessitous, this would put it in the power of the scrivener to make advantage of such necessities, and would let in oppression, and foreclose the power and jurisdiction of this Court.” In saying that this was the real foundation of the interference of the Court of Equity with the legal right of the mortgagee I am not forgetting the technical account of the matter given by Lord Haldane L.C. and Lord Parker in Kreglinger (G. & C.) v. New Patagonia Meat, etc., Co. (4) Lord Haldane himself truly observed (1) that “the lending of money, on mortgage or otherwise, was looked on with suspicion, and the Court was on the alert to discover want of conscience in the terms imposed by lenders.”

(1) [1903] 2 Ch. 1, 15.; (2) [1905] 2 Ch. 78.; (3) (1714) 1 P. Wms. 268.; (4) [1914] A. C. 25.

 

My Lords, loans made to limited companies on the security of their assets are in general very different from loans made to individuals. Companies may be wound up, in which event their debts have, if possible, to be paid, but they do not die. To the knowledge of both the company and the lender the loan is intended in most cases to be of the nature of a permanent investment. The former can only in the rarest of circumstances be at the mercy of the latter. There is no likelihood of oppression being exerted against the company. Considerations such as these make it manifest that clauses in debentures issued by companies making them irredeemable or redeemable only after long periods of time or on contingencies ought to be given validity. It may be conceded that the ground for excluding the rule in equity is stronger in the case of a series of debentures issued in one of the usual forms than in the case of mortgages of land to an individual; but some of the reasons still remain. It is difficult to see any real unfairness in a normal commercial agreement between a company and (for example) an insurance society for a loan to the former on the security of its real estate for a very prolonged term of years. Both parties may be equally desirous that the mortgage may have the quality of permanence. There is a great deal to be said in such a case for freedom of contract.

I do not think there is any strong argument for suggesting that s. 74 of the Act of 1929, or any of its predecessors, ought by reason of its nature to be confined to what may be called ordinary debentures. As we have seen, some definition was certainly desirable, and the very wide terms used by the Legislature in the Act of 1928 and reproduced in the consolidating Act of the following year seem to me to show that it was intended to give freedom of contract as regards the particular matter involved in s. 74 in relation to any securities  granted on loan by a company registered under the Companies Acts. It is contended that the context otherwise requires. I am unable to find any such context. It is, of course, true that some of the ss. 73 to 78 which are to be found under the heading “Special Provisions as to Debentures” are not dealing with mortgages of land by a company to an individual. Sect. 73, for example, is apparently dealing with debentures issued in a series and registered. Sect. 75 is perhaps also limited in the same way. It does not seem to me, as at present advised, that ss. 76 and 78 require any such qualification. We are dealing with an Act in which the word “debenture” is used in numerous sections, and it must be admitted in more than one sense. The practice of inserting a definition in such a case has often been criticized. It was described by Blackburn J. in Lindsay v. Cundy (1) as a modern innovation which frequently does a great deal of harm, and by Lord St. Leonards L.C. in Ely (Dean and Chapter) v. Bliss (2), as an attempt to put a general construction on words which in the different senses in which they are introduced in the various clauses of an Act do not admit of such. It is probably too late to add to these and other complaints. All we can do is to see whether the interpretation clause in this case can reasonably be applied to s. 74 without leading to any startling result and whether there is any context which requires us to reject some of the words of the definition. The fact that a particular section contains a provision relating to a particular kind of debenture does not assist us. We do not, for example, use the word “man” in a restricted sense if we make a statement about white men. “Man” has its ordinary meaning; it is the word “white” which qualifies the statement and makes it applicable to only some men. So here s. 74 itself applies only to debentures creating a charge. That is because the section applies only to debentures creating a charge capable of being redeemed. It is not a reason for holding a security of a company creating a mortgage of land is not a debenture within s. 74. Finally, it should be noted that the mortgage with which we are concerned on the present appeal could without difficulty have been drafted in the form of an ordinary company debenture with a charge on its face followed by the provisions as to the instalments by which it is to be paid off, and if desired with the various conditions and provisos printed on the back.

(1) (1876) 1 Q. B. D. 348, 358. ; (2) (1852) 2 De G. M. & G. 459.

 

For these reasons I am of opinion that the word “debentures” in s. 74 must be given the meaning attached to that word by s. 380.

 

The contention that the rule against perpetuities applies to the mortgage has not been very strongly urged by counsel for the appellant who candidly admitted that he raised the point because the reason often given for exempting mortgages from the rule against perpetuities was that a condition in a mortgage precluding redemption for over twenty-one years would be void in equity. Both Luxmoore J. and the Court of Appeal pointed out that the rule has never been applied to mortgages, and they declined to depart from the established view that mortgages were not within the rule. In my opinion they were justified in taking that course. I will only add that since the Law of Property Act, 1925, came into force it seems to be more difficult than ever to invoke the rule in the case of mortgages. Where, as in the present case, there is a mortgage term for 3000 years with a statutory provision for cesser of the mortgage term on discharge of the money secured by the mortgage it would seem difficult to consider the case as being within the rule. In saying this I do not wish to throw any doubt upon the view that mortgages before the year 1926 were an exception to the rule.

 

My Lords, the question remains whether, accepting the view that s. 74 of the Companies Act, 1929, applies, the appellants can obtain a declaration that they are entitled on the usual notice to redeem the mortgage upon payment of principal, interest and costs. In my judgment the section establishes that the fact that the mortgage is made irredeemable for forty years is not itself a ground for the application of the rule of equity assuming that but for the section it would apply. I am not forgetting the words “by reason only that the debenture,” etc.; but the word “only” does not, I think,  detract from the fact that the main ground for attack on the present mortgage is the length of time which must elapse before the right of redemption will exist according to its terms. Apart from the provision postponing the right of redemption there would be no objection to the mortgage. The word “only” in the section leaves open for consideration by the Court cases where there has been hardship or oppression by the mortgagee; but I am unable to take the view in this case that the terms of the mortgage are so stringent and the restrictions which it imposes on dealings by the appellants with the mortgage properties are so oppressive that these matters read in the light of the provisions of s. 74 would justify the interference of the Court. In this connection it is right on the question of hardship to take into account the circumstances in which the mortgage was entered into, the great experience of the solicitors on both sides, and the care with which the negotiations were conducted. The appellants executed the mortgage with their eyes wide open. In such a case, the Court in these days must be slow to interfere with a contract deliberately entered into; and having regard to the view above expressed as to s. 74 and its consequences I must come to the conclusion that the appellants’ claim to redeem contrary to the terms of the mortgage must fail.

 

For these reasons I am of opinion that the appeal should be dismissed with costs.

 

 

LORD ATKIN.

My Lords, I have had an opportunity of reading in advance the opinion which has just been delivered by my noble and learned friend Viscount Maugham, and also the opinion which is about to be delivered by my noble and learned friend Lord Romer. I agree with them and I have nothing to add.

 

 

LORD WRIGHT.

My Lords, I also have had a similar advantage. I agree with the opinion of the noble and learned Lord on the Woolsack, and with that about to be delivered by my noble and learned friend Lord Romer.

 

LORD ROMER.

My Lords, at the conclusion of the interesting arguments of Mr. Vaisey and Mr. Stamp on behalf of the appellants, it became clear that it is desirable to ascertain in the first place whether the mortgage of November 6, 1931, is a debenture within the meaning of s. 74 of the Companies Act, 1929, and, if that question be answered in the affirmative – whether the claim of the appellants to be entitled to redeem the mortgage at the present time must not necessarily fail in view of the provisions of that section. Your Lordships accordingly requested Mr. Gover, on behalf of the respondents, to confine his argument to those particular questions. I understand that on due consideration of the arguments on the one side and the other all your Lordships have come to the conclusion that both the questions should be answered adversely to the appellants. In that conclusion I concur, and will now state quite shortly my reasons for so doing.

 

The section in question is in these terms: “A condition contained in any debentures or in any deed for securing any debentures, whether issued or executed before or after the commencement of this Act, shall not be invalid by reason only that the debentures are thereby made irredeemable or redeemable only on the happening of a contingency, however remote, or on the expiration of a period, however long, any rule of equity to the contrary notwithstanding.”

 

The history of this section is set forth by Luxmoore J. (as he then was) in his judgment in the present case. Shortly stated the history is as follows. It first appeared in substantially the same form as now in s. 14 of the Companies Act of 1907, and it was repeated in s. 103 of the Companies Act of 1908. Luxmoore J. has examined those Acts and has given reasons that to my mind are conclusive for thinking that an ordinary mortgage of freehold property was not a debenture or a deed for securing debentures within the meaning of those sections. “No one” – I am quoting from Buckley on the Companies Acts, 11th ed., p. 174 – “seems to know exactly what ‘debenture’ means.” As “no one” in this passage presumably included Lord Wrenbury himself, I am not ashamed to say that it certainly includes me. But this much

 

I can say without hesitation, that the word “debenture” as ordinarily employed in legal and commercial circles did not in the year 1908 include an ordinary mortgage of land. When, therefore, s. 103 of the Companies Act, 1908, was reproduced word for word in s. 74 of the Act of 1929, the conclusion to which one would have come at first sight would have been that it was not the intention of the Legislature to bring such a mortgage within the operation of the last mentioned section. And this conclusion would have been strengthened by a consideration of the other provisions of the 1929 Act until one arrived at the definition of the word “debenture” contained in s. 380. It is, for instance, to be observed that s. 74 is contained in Part II. of the Act, the heading of which is “Share Capital and Debentures” and which contains (s. 34) provisions relating to prospectuses inviting persons to subscribe for shares in, or debentures of, a company; provisions (s. 63) as to the transfer of shares in or debentures of the company by a proper instrument of transfer, and (s. 67) as to the issue of certificates of shares, debentures, and debenture stock allotted or transferred, provisions that scarcely seem applicable to ordinary mortgages of land. Then, again, s. 74 itself forms one of a fasciculus of sections under the heading “Special Provisions as to Debentures,” the first of which sections confers upon the registered holder of any debentures and any shareholder of the company, but apparently upon no one else, a right of inspecting the register of holders of debentures. This may usefully be contrasted with the provisions in s. 82, sub-s. 3, which give a right of inspection of the register of charges to any member of the public who cares to pay the prescribed fee for the privilege. It might too have reasonably been expected that if s. 74 was intended to apply to an ordinary mortgage of land it would have appeared in Part III. of the Act which is dealing with the registration of charges – a word that includes mortgages (s. 79, sub-s. 10 (a)) – rather than in Part II. of which so many of the provisions are inapplicable to an ordinary mortgage of land.

 

But s. 380 of the Act provides that unless the context otherwise requires the expression “debenture” in the Act includes “debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not.” Now the considerations to which I have referred certainly arouse a suspicion in my mind that when enacting s. 74 of the Act, the Legislature had not ordinary mortgages of land in its contemplation. But I find it quite impossible to say that those considerations require that such mortgages should be excluded from the operation of the section. When applied to such mortgages the provisions of the section are quite sensible. They involve no absurdity and no inconsistency. On the contrary. If it be thought desirable that debentures in their popular meaning may be made irredeemable, it would seem to be both absurd and inconsistent to forbid a company to make its ordinary mortgages of land also irredeemable. I can find no legitimate reason for not attributing to the word “debentures” in s. 74 the meaning given to it by s. 380.

 

The reason that induced Luxmoore J. to come to the opposite conclusion was this. Regarding the Act of 1929 as being, as indeed it is, a consolidating statute, he rightly said that it must be construed ordinarily so as to exclude any amendment of the previously existing law. But his attention was not drawn to the Companies Act, 1928. That was an amending Act passed with a view to the consolidation of the law which was effected by the Act of 1929, and one of the amendments made by the Act of 1928 was an amendment of the definition of the word “debenture” contained in s. 285 of the Act of 1908. As a matter of fact the Legislature had not in that section attempted to do what no one had succeeded in doing before, namely, give an exhaustive definition of the word “debenture.” It contented itself with saying that “debenture” includes debenture stock. Then came the Act of 1928 in which a number of minor amendments to sections of the 1908 Act were set out in the Second Schedule. Among them was this: “Section 285. At the end of the definition (sic) of debenture there shall be added the words ‘bonds and any other securities of a company whether constituting a charge on the assets of the company or not’.”

 

Hence the definition of “debentures” in s. 380 of the consolidating statute of 1929.

It was, however, contended on behalf of the appellants that the words “any other securities” should be construed as referring only to securities ejusdem generis as the genus to which debentures belong. All I can say about this is that, if no one seems to know exactly what “debenture” means, no one can be expected to know what is ejusdem generis with it. Indeed, the very fact that no one seems to know exactly what debenture means indicates pretty plainly that debenture is itself the name of a genus and not of a species. In my opinion the words “any other securities” mean what they say, and include all other securities of any kind whatsoever.

 

It was finally urged on behalf of the appellants that they are not attacking the provisions of the mortgage of November 6, 1931, by reason only that it is irredeemable until the expiration of a period too remote, but by reason of the other conditions contained in the mortgage when read in combination with the postponement of the right of redemption. It is, however, quite plain that what the appellants are complaining of is the denial of their right to redeem at the present time, and that the materiality of the other conditions to which they called your Lordships’ attention is merely this: that the existence of them renders it essential for the appellants, if they can possibly do so, to redeem forthwith. If it were not for the conditions in the mortgage making it irredeemable until the expiration of forty years from its date, the appellants would have no cause of complaint.

 

For these reasons I am of opinion that this appeal should be dismissed with costs.

 

LORD PORTER. My Lords, I concur.

 

Appeal dismissed.

 

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