Knightsbridge Estates Trust Ltd v. Byrne and Others
[1940] 2 All ER 401(Judgment by: Lord Romer)
Between: Knightsbridge Estates Trust Ltd
And: Byrne and Others
Judges:
Viscount Maugham
Lord Atkin
Lord Wright
Lord RomerLord Porter
Subject References:
land
Mortgage
Mortgage by company
Principal repayable by instalments over period of 40 years
Postponement of redemption
Reasonableness of postponement
Clog on equity
Rule against perpetuities
Whether mortgage a debenture
Legislative References:
Companies Act 1929 (c 23) - s 74; s 380
Case References:
Levy v Abercorris Slate & Slate & Slab Co - (1887) 37 ChD 260; 7 Digest 31, 156; 57 LJCh 202; 58 LT 218
British India Steam Navigation Co v Inland Revenue Comrs - (1881) 7 QBD 165; 6 Digest 500, 3172; 50 LJQB 517; 44 LT 378
Lemon v Austin Friars Investment Trust Ltd - [1926] Ch 1; Digest Supp; 95 LJCh 97; 133 LT 790
Samuel v Jarrah Timber & Wood Paving Corpn Ltd - [1904] AC 323; 10 Digest 782, 4892; 73 LJCh 526; 90 LT 731; affg [1903] 2 Ch 1
Re Southern Brazilian Rio Grande do Sul Ry Co Ltd - [1905] 2 Ch 78; 10 Digest 733, 4582; 74 LJCh 392; 92 LT 598
Floyer v Lavington - (1714) 1 P Wms 268; 35 Digest 355, 984
Kreglinger v New Patagonia Meat & Cold Storage Co Ltd - [1914] AC 25; 35 Digest 241, 20; 83 LJCh 79; 109 LT 802
Lindsay v Cundy - (1876) 1 QBD 348; 42 Digest 679, 910; 45 LJQB 381; 34 LT 314; on appeal (1878) 3 App Cas 459
Ely (Dean) v Bliss - (1852) 2 De G M & G 459; 42 Digest 679, 908; 20 LTOS 35
Judgment date: 22 April 1940
Judgment by:
Lord Romer
My Lords, at the conclusion of the interesting arguments of counsel for the appellants, it became clear that it was desirable to ascertain in the first place whether the mortgage of 6 November 1931 was a debenture within the meaning of the Companies Act 1929, s 74, 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 counsel for 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 Companies Act 1929, s 74, provides as follows:
'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 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 the Companies Act 1907, s 14, and it was repeated in the Companies Act 1908, s 103. Luxmoore J has examined those Acts, and has given reasons which, 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. As was said in Buckley, Law and Practice under the Companies Acts (11th Edn), p 174:
'No one 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. This much, however, I can say without hesitation. The word "debenture" as ordinarily employed in legal and commercial circles did not in 1908 include an ordinary mortgage of land. When, therefore, the Companies Act 1908, s 103, 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. 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 to be observed, for instance, 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 provisions (s 67) as to the issue of certificates of shares, debentures, and debenture stock allotted or transferred-provisions which 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(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 been reasonably 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 which includes mortgages (s 79(10)(a))-rather than in Part II, so many of the provisions of which are inapplicable to an ordinary mortgage of land.
Section 380 of the Act, however, 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 ...'
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. I find it quite impossible, however, 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 which 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. His attention, however, 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 Sch II. Among them was this:
- 'Sect. 285.
- At the end of the definition 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 contended on behalf of the appellants, however, 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 6 November 1931, by reason only of the fact 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 quite plain, however, 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 that their existence 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 40 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.